When you liquidate your company, this means it is officially closed with all assets disposed of and is removed from the Companies House Register. The options you have, in order to do this, depend on your state of solvency.
Who can liquidate my company?
Unfortunately, you cannot do the process yourself. Only a licensed Insolvency Practitioner can liquidate your company. The process itself is complex, so professionals are needed to ensure the process is fair and proceeds are equally distributed. Directors themselves are too close to the company and may act wrongfully.
As a director, be aware that the liquidator has the duty to assess your conduct in the time preceding insolvency. Any signs and evidence of directors’ misconduct or wrongful trading can lead to a director’s disqualification order and so a ban from being a director, for the next 15 years.
When appointing a liquidator, be aware that the insolvency practitioner can change. You can choose the IP to prepare your statement of affairs, call the creditors meeting etc. but once the meeting is underway, it is possible for an alternative IP to be appointed by the creditors. Hence its name creditors voluntary liquidation.
- Take our free online insolvency test to see if your company is insolvent. If you find your company is insolvent, the best option would be a Creditors Voluntary Liquidation (CVL), rather than being forced into a compulsory liquidation, by a winding up order.
- Search around for a licensed Insolvency Practitioner (IP), like ourselves. You are then to appoint them to assist you through the procedure. They will require financial documents and information, so have these prepared.
- The IP can then hold a creditors meeting, where all members involved vote on whether winding-up of the company should go ahead. For the approval of the winding up, at least 75% of members, by value, must vote in favour. Alternatively, s more convenient procedure is for a written resolution to be signed and returned by shareholders. Again, 75% must be in favour.
- Once the winding up resolution has passed, the IP can take control of the company. They have the job to turn all assets into cash so that proceeds can be distributed amongst creditors.
What if my company is solvent?
Perhaps your company is not facing financial difficulties. However, you still wish it to be liquidated so you can release cash tied up in it. In scenarios like this, a Members Voluntary Liquidation (MVL) is the correct procedure.
- Assess if your company has net assets over £25,000. If the worth is less, a strike off may be cheaper.
- Hold a shareholders meeting to vote on the winding up of the company.
- Inform and appoint an IP.
- A declaration of solvency is prepared by the liquidator. The document confirms that the company can repay any debts (as well as interest) within a 12-month period.
- Company assets are liquidated by the IP, who then distributes proceeds to the company members.
In this scenario, you can gain the benefit of a reduced rate of tax to be paid, from entrepreneur’s relief.
What if I cannot afford the cost?
Company directors can sometimes intend on their company closing, yet have not got the money to appoint an IP.
You should be aware that the liquidators’ fees are taken from the realisation of assets, with them legally becoming a preferential creditor. This gives greater chance that you can afford an IP, so long you have assets.
If you avoid liquidation because of the cost, you face the situation of waiting to be compulsorily wound up by a creditor. In this instance, directors have less control over the process.
The cost of liquidation is dependent on the company’s size, complexity and debts. The more the assets the company have to realize, the higher the cost as the IP will need a longer time period to complete the work.
Sometimes, liquidations can be funded by a director’s redundancy pay – check eligibility for this first as you will need to have been employed on a contract, be paid through PAYE, and not owe the company any money.
How long will my company stay in liquidation?
Typically, the process lasts at least a year. With more significant assets, it could take longer.
It takes just a couple of weeks to appoint an IP, but approving the liquidation takes much longer, being around 3 months. The job of the IP themselves can take significantly longer, due to their assessment of the company’s situation, selling of assets, negotiations with creditors and distribution of proceeds.
What are the disadvantages to me of liquidating my company?
Liquidation is expensive, due to its complexity. The cheapest type of liquidation is a compulsory liquidation, as you wait to be forced into the procedure, which is paid for by the creditor. For a voluntary liquidation, it is more expensive as you must pay the IP to prepare a statement of affairs.
Potentially damaging your brands reputation – when your company ceases trading, the brand is lost. When going through the process, contacting creditors and making your situation aware in the public eye, your company’s image can be ruined and damaged, leaving uncertainty for investors, employees and customers.
Being investigated post-liquidation, as after any liquidation process, liquidators have the duty to investigate all the directors’ actions, whilst the company was trading insolvently. You will be examined for any wrongful trading, and as mentioned above, this has damaging consequences.
If you have personal guarantees or have acted fraudulently or in a way to intentionally not repay creditors, you may be personally liable for the company debts.
Obtaining credit for a new company might be difficult as it would have a flag against it, to say that the director has had a previous failure. What is good news is that your personal credit rating should not be affected too much, as business failures are separate from personal insolvencies.
If you liquidate just one company, this may be acceptable, yet if you have multiple liquidations, that might be frowned upon. In rare cases, it can affect your progress in specialist professions that are involved in national security, insurance or banking due to very strict selection criteria or vetting. Not something that will concern most people but you may find it harder to earn an Honour i.e. an MBE or knighthood. This is because of HMRCs veto.
Despite there being disadvantages of liquidation, there are benefits. Liquidating your company means the pressure of debts increasing, is removed. Debts are paid off as much as is possible, from the sale of the liquidated companies’ assets. Liquidation also stops any further legal action occurring to your company. Pressure is alleviated from creditors – rather than you having to communicate with creditors, the IP can do so, providing a huge relief.
For more information, help and assistance with liquidating your company, contact us today.