When a company is issued with a winding up order, it means the end of that company. It will be closed down permanently and cease to exist once the process has been completed. If a creditor has issued your company with a winding up petition and you feel there are no options available to you, you may be wondering what the best method is to wind up a company. There are several methods of winding up of a company, which we’ll detail below. Deciding which is the best route to go down will depend on the specific nature of your business, the level of debt and the type of creditors who are asking for repayment of debt owed.
The winding up of a company is a legal procedure in which all the legal and financial affairs of a company are wound up. All assets are realised and sold in order to fulfil the debts owed to a list of creditors (who are ranked in accordance with their rights). The Administration process to carry out this work is undertaken by a licensed insolvency practitioner. The insolvency practitioner (IP) is either appointed by the company and creditors or by the court to deal with the winding up of the business.
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Four Key Questions on Methods of Winding Up of a Company
What are the Best Methods of Winding Up of a Company?
There are many reasons why you might wish to wind up your company. The best method to wind up a company will depend on a few factors, including whether the company is solvent and has the ability to pay its bills within the following 12-month period. Let’s take a look at the main option open to your company.
Dissolution of the Company – This is the simplest of all the methods of winding up of a company. There are, of course, strict guidelines to follow during this process including paying all creditors in full, closing all bank accounts and submitting your final accounts whilst notifying HMRC. The business must also cease trading for the three months prior to the dissolution of the company and must not change its name during this period.
What Happens with Voluntary Liquidation?
There are two choices for voluntary liquidation that can be looked at as a potential best method to wind up a company:
Members’ Voluntary Liquidation (MVL) – This process requires the involvement of an appointed insolvency practitioner and is used when a business is no longer required. The director must sign a declaration of solvency with reassurances from the insolvency practitioner towards the creditors that all bills can be paid within 12-months, and that all statutory obligations will be met.
Creditors’ Voluntary Liquidation (CVL) – The directors of a company can begin the process of a CVL, which allows them to engage with an Insolvency Practitioner of their choosing. A CVL is appropriate when the company is insolvent and is very unlikely to be rescued, or to recover. During the process of an insolvent liquidation the directors of the company must put the interest of creditors and shareholders above their own. Acting decisively in this manner to reduce the loss creditors face will much less likely lead to accusations of wrongful trading.
What Other Liquidation Options Are There?
There are a couple more methods of winding up of a company, including:
Compulsory Liquidation – This process begins when a creditor takes legal action against the company that owes it money. If several attempts have been made, unsuccessfully, to recover money owed, the creditor may issue a winding up petition. In most cases of a winding up petition being issued, a compulsory liquidation follows. This leads to the company being closed down and removed from the register of companies. In this instance all assets are realised with a view to repaying creditors, and all directors will be investigated for instances of wrongdoing or fraudulent business practice that led to the insolvency of the company.
This is a Court-led procedure, in which the directors have no control. If facing the threat of a winding up petition, or if you are concerned about the solvency of your business, it is key to seek independent expert advice at the earliest opportunity. If a winding up is unavoidable, it is more often preferable that the director leads the process by engaging with an Insolvency Practitioner.
How Do I Find the Right Help with Winding Up My Company?
There are several options in term of methods of winding up of a company, and we completely understand that it may be challenging and confusing at first, should you be the director of a company that is struggling financially. It is always the best practice to completely understand your situation and the choices and options open to you moving forward.
We can help you regain some focus and clarity at this troubling time, with our professional and licensed insolvency practitioners able to offer advice and guidance about all aspects of insolvency and the winding up process for your business. If you have any further questions about the best method to wind up a company, contact us today. Every case is unique and we’ll ensure that you have all the relevant data and advice at hand in order to make informed decisions about what is best for your company and creditors at this time.