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Liquidation and closure
Liquidation is the process your company faces if you have cash flow problems on a regular basis and creditors are threatening to take enforcement action against the company. Liquidation is appropriate when there is no prospect of selling the business or part of the business.
What are the options?
The process of business liquidation, whether voluntary liquidation or compulsory, is primarily geared around the realisation of company assets for creditors, but depending on the specific situation the processes can vary slightly.
- Creditors’ Voluntary Liquidation – This process takes place when a company is insolvent and no longer has the ability to pay liabilities or to continue trading. Once the directors of the company have instructed an insolvency practitioner they commence a decision-making process to place the company into liquidation and appoint a liquidator. Find out more information on CVL’s here
- Member’s Voluntary Liquidation – This process takes place when a company is still solvent and able to trade, yet the directors of the company wish to close the company down. This ensures that the process can be achieved professionally and in an orderly manner wherever possible. This could be due to the retirement of a director or shareholder, or when a family business has no one to succeed. Dependent on certain criteria, this process can potentially have significant tax advantages for shareholders. Find out more about MVL’s here
- Compulsory Liquidation – This process involves the courts and happens when a winding up petition has been issued by a creditor of an insolvent company, as a due debt has not been satisfied. The petition is subsequently heard at a winding-up hearing and a judge can make a Winding-Up Order to place the company into Compulsory Liquidation.
Why choose liquidation and not other options?
By choosing to liquidate your company, you can benefit as a director. It prevents the creditors of the company from incurring more debt and ensures you, as a director, are less likely to be guilty of wrongful trading action being brought against you.
It is always useful to understand voluntary liquidation UK guidelines, as well as the benefits of voluntary liquidation in the UK. The process of a company being liquidated also ensures that:
- Employees can submit redundancy pay claims through government schemes
- Removes pressure from all creditors
- Prevents further legal action being taken against you
- Allows time for realisation of company assets, ensuring that creditors receive the best possible return in terms of repayment of debt owed
- Potentially allows the opportunity for directors and/or shareholders to purchase assets at fair value, if they can be used in another business going forward
- Offers a complete, clean break for directors to move on from the company
- As liquidator’s costs are paid once company assets are realised (providing assets are of sufficient value), there are no other fees directors are liable for.
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