If your company is insolvent and is to be liquidated it is useful to know how long the process takes so that you can get on with your life.
When you’re in that situation, you need to know how liquidation works and so you can take the necessary steps for both you and your business. It is important to realise that the faster that you can get all the paperwork in order the quicker the process takes. As a director you have a duty to cooperate with the liquidator.
Here, we’ll explore how long it takes to liquidate a company and summarise the entire liquidation procedure.
What do we mean by liquidation?
There are two core types of liquidation; voluntary and compulsory.
Which one you choose depends on whether you decide to go into liquidation yourself, or are forced into it by your creditors.
Either way, it’s a very important process that will result in the dissolution of your company. You’ll stop trading, your employees will be made redundant and your business assets will be sold to pay creditors.
A quick recap of the liquidation process:
1. Voluntary liquidation aka Creditors Voluntary Liquidation (CVL)
A CVL is the form of liquidation where directors decide to liquidate a company. This normally occurs when they realise they’re insolvent, with no hope of restructuring.
The first step is when the majority of the company’s board sign a resolution to go into liquidation.
Shareholders then attend a general meeting to approve this decision. 75% of these shareholders must approve the liquidation if it’s to go through.
Then, usually on the same day, creditors attend a separate meeting to approve the company’s move into liquidation and select a liquidator. In most cases, there’s a gap of around half an hour between these two meetings. Creditors meetings can now been done virtually via video conferencing. A physical meeting can be requested under certain circumstances.
2. Compulsory liquidation
This process is much slower than CVL, and the company has no control over the sale of assets. The government also charges a 17% tax on all assets which makes this the least favourable option of the two.
Compulsory liquidation begins when a creditor serves a statutory demand giving you 21 days to pay, or 18 days to set the demand aside.
If you do not pay or refute the demand, the creditor can apply to the court for a winding up hearing. The company that’s to be liquidated must be given 14 days' written notice of the hearing.
At this hearing, the court will decide whether the petition should transition to a winding up order, resulting in the liquidation of the company.
How long does it take to liquidate a company?
The appointment of a liquidator, which means that the powers of the directors cease, usually takes between one and two weeks.
If more than 90% of shareholders agree to short notice, liquidation can happen within seven days. This is the minimum statutory notice for creditors.
It doesn't stop there in that the liquidators now have to sell the assets etc, do investigations and file the necessary paperwork. This can take 1-2 years and maybe longer. The bigger the liquidation usually the longer it takes.
For compulsory liquidation, the time between the initial threat and the end-of-court proceedings is usually three months.
However, in both cases, this is just the time it takes to approve the liquidation. After approval, the appointment of a liquidator, the sale of company assets, and agreeing creditors’ claims and working out what return goes to them can add anywhere from three months to a year to liquidation proceedings.
There is no legal time limit on business liquidation. From beginning to end, it usually takes between six and 24 months to fully liquidate a company. Of course, it does depend on your company’s position and the form of liquidation you’re undertaking.
What happens next?
At the end of the process, the liquidator will send a final report to creditors after investigating the company and the directors’ conduct.
If the Insolvency Service chooses to investigate you for wrongful or fraudulent trading, it can ask to keep the liquidation open longer.
If you are found guilty of wrongful or fraudulent trading, you could be held personally liable for the company’s debts. This is particularly true if you have acted improperly or outside the creditors' interests.
However, if you are found innocent and have acted properly, you can claim a redundancy from the government like any other employee. Contrary to what you may be led to believe the process of claiming redundancy as a director is very simple (takes about 20 minutes on a form) so there is no need to use third parties. You can then start your next venture either as a director of a different company or in a completely different role.