Company Liquidation is when a company's assets are turned into cash. In the case of an insolvent company the proceeds are used to pay back any creditors. If the company is not insolvent then the proceeds are distributed to members and shareholders. We discuss here the process to company liquidation.
There are three types of company liquidation (UK)
- Compulsory Liquidation
- Members Voluntary Liquidation
- Creditors Voluntary Liquidation
Please read our guide to the main types of liquidation here
The Creditors Voluntary Liquidation Process
- Directors start the procedure by realising and telling shareholders the company is no longer viable, cannot meet creditor payments or has threat of legal action upon it - they are insolvent and must stop trading.
- Shareholders ask (online, by phone or in person) a licensed insolvency practitioner to call a creditors meeting ASAP - usually within 2-3 weeks.
- A formal creditors meeting notice is sent to all creditors by the nominated liquidator (see here for examples of creditor meeting notices).
- A meeting of creditors occurs; in person or digitally online. Note: no longer are physical meetings mandatory, unless requested by 10 individual creditors, 10% in total number of creditors or 10% by value of creditors. The IP will lead the meeting and direct the process.
- The liquidation will be approved by what is termed 'deemed consent' unless there is an objection from at least 10% of creditors (in value or number). If there is an objection then a vote must be held.
- Why not read our 50 page guide on creditors voluntary liquidation?
For a Members Voluntary Liquidation
The process is similar to that above, but as the company is solvent, any cash remaining, from realising assets, is shared with shareholders by value.
What does a liquidator do?
- Run the liquidation
- Fill out all required forms
- Call and arrange the necessary meetings
- Investigate the conduct of directors before the liquidation happened
- Collect assets and turn them into cash
- Work out debts and pay creditors from any assets remaining (known as paying a dividend to creditors. Often the dividend is very little or zero because assets tend to be sold for small amounts of money by liquidators, as there are very few buyers). Note, there is an order of hierarchy in which creditors are paid; secured creditors being settled first.
NOTE - You cannot liquidate your company without a liquidator!
What about directors?
The process itself it director-initiated, meaning it is your choice, as a director to place the company into liquidation (but of course compulsory is slightly different as it is more forced upon you).
Once the company is "in liquidation" the directors have to fill out a detailed questionnaire for the liquidator. They MUST provide all of the company's books and records to the liquidator (it is a criminal offence to not comply with the liquidators information requests).
The director then must attend the creditors meeting.
Being a director paid through PAYE and a salary, redundancy pay, holiday pay and unpaid wages may be claimed - however there are exceptions to this. Please call us on 08009700539 to talk through your options.
After the company liquidates, you, as a director, are able to become a director of another company. However, you must be sure to not trade with a name similar to the previously liquidated company, as this breaches s216 Insolvency Act 1986.
What happens after company liquidation?
The company is simply removed from the register of companies held at Companies House, and it will cease to exist as a legal entity.
As mentioned above, so long there are no breaches of conduct by the company director(s), they face no penalty, no liability and can move on to set up another company etc. Note: if you, as a director of a recently disolved company, wish to set up a new company within the same industry, seek advice from insolvency practicioners like ourselves. There are some complex rules around, what is known as 'phoenix' companies, so it is best to be checked and advised to stay professional and compliant.
ACT NOW... while you still can!
If the business is facing financial difficulties, has no future and very little cash, debtors or small asset values, get it into liquidation BEFORE it runs out of cash and assets to pay for the liquidation. This is a common mistake made by directors, thinking something will turn up...but NO! They fail to act soon enough and so their business ends up with no assets, facing winding up petitions .This is more risky for the directors than voluntary liquidation. See more information on the compulsory liquidation process, of which you want to avoid!!
If you would like to find out more, as well as get answers to legal and insolvency issues, request our FREE 40-page guide for worried directors.
Remember to always act properly. Don't take chances or think you are smarter than the law - unfortunately, lots of people think they are and end up in personal financial trouble. So, call us now, and ask all the questions you want for free... 0800 9700539.