Liquidation is the process of closing a business down and distributing its assets between their creditors, based on the priority of their claims. There are two forms of liquidation:
Creditors Voluntary Liquidation (CVL) - occurs when the directors voluntarily put their company into liquidation, because they are struggling to pay their debts. They will cease to trade and all company assets are sold to pay off remaining creditors.
Compulsory Liquidation - occurs when a company that is owed a significant amount of money is chasing a business for their payment. When they are unable to collect they go to the courts to ask for the businesses liquidation.
All outstanding creditors will be dealt with as part of the process giving distressed company directors a fresh start away from the stresses associated with an underperforming business.
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Liquidation is a common way for companies to deal with insolvency. It's important to understand what liquidation could mean for your company, so here are a few advantages and disadvantages.
Remaining debt is written off - not being able to pay off your debts can cause an untold amount of stress. Liquidation offers a way to clear your debts by selling off your assets. As long as you haven’t given any personal guarantees, you have no liability for any remaining debt not covered by the company's assets.
Legal action will be halted - Once you enter liquidation any and all legal action pertaining to a business' remaining debt will be halted (again, as long as you have made no personal guarantees).
Employees can claim redundancy - When your company is liquidated your staff will be made redundant, meaning they will then be able to claim redundancy pay. If the sale of assets isn't enough to pay out their redundancy they will be able to claim what is owed from the government.
Any lease can be cancelled -Anything you lease will usually have terms associated with paying it back. Often, leases are terminated at the date of liquidation.
Costs are low - Apart from the initial fees to set the liquidation in motion, the other fees will be paid out of the sale of assets so there is relatively very little cost involved.
Investigation of the company - When a company is liquidated it is a formality for the insolvency practitioner to investigate the conduct of the company directors. If there is cause for a case to be brought for wrongful trading, it could carry stringent penalties.
Liability if personal guarantees made - If you personally guaranteed any debts, you will be personally liable to pay them, no matter if you liquidate your company or not.
Overdraft liability - if a director has an overdraft, they are personally responsible for paying it back.
This list is not exhaustive but encompasses the main advantages and disadvantages of liquidation.
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The process of insolvency will begin once your business agrees.
Your assets will be sold and your creditors will be paid off with the proceeds.
You're safe in the knowledge that your debts have gone and that you can start afresh.
At Business Insolvency we provide fast, low-cost liquidation, 100% confidential services and stop HMRC using our network of insolvency experts.
With experienced advisors throughout the UK, we can connect you with the right team and experience to help you make a fresh start.
As a Director, you should only consult with experienced and registered Insolvency firms, especially when it comes to your sensitive details.
If your company is in need of fast, low cost, liquidation services, contact us today for a free consultation.
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What is a Creditors’ Voluntary Liquidation (CVL) and how does the process work?
A Creditors’ Voluntary Liquidation (CVL) is a formal insolvency procedure which involves the directors of an insolvent company voluntarily choosing to bring their business to an end, and wind the company up.
Employees can claim redundancy - When your company is liquidated your staff will be made redundant, meaning they will then be able to claim redundancy pay. If the sale of assets isn't enough to pay out their redundancy they will be able to claim what is owed from the government.
Although the process is entered into on a voluntary basis, it often follows the cumulation of many months of financial distress when the possibility of a successful turnaround has been extinguished.
Even though this is far from an ideal situation, for an insolvent company which has no viable future as a profitable entity going forwards, voluntary liquidation by way of a CVL may be the best solution for all concerned.
When is a Liquidator appointed?
The liquidator is an authorised insolvency practitioner or official receiver who runs the liquidation process. As soon as the liquidator is appointed, they’ll take control of the business.
What happens to directors?
Where liquidation signals the ultimate end of a company, administration on the other hand is often focussed on saving the business through a process of restructuring. Once a company is placed into administration, the appointed administrator takes control of the company and it is immediately granted a moratorium – a powerful ring-fence that halts any legal action being taken.
This gives the administrator time and space to assess the company and devise a strategy to rescue the business should this be possible. This may involve a process of streamlining such as closing down non-performing areas of the business or unprofitable retail stores, or else by restructuring its debts to make them more affordable.
The difference between liquidation and administration
Company liquidation is a formal way of bringing about the end of a business. The most common type of liquidation procedure is a Creditors’ Voluntary Liquidation (CVL) which is used to close down insolvent companies.
All outstanding creditors will be dealt with as part of the process giving distressed company directors a fresh start away from the stresses associated with an underperforming business.
What happens to directors?
There are 3 types of liquidation:
1. Creditors’ voluntary liquidation – your company cannot pay its debts and you involve your creditors when you liquidate it.
2. Compulsory liquidation – your company cannot pay its debts and you apply to the courts to liquidate it.
3. Voluntary liquidation – your company can pay its debts but you want to close it.
What is liquidation?
When you liquidate a company, its assets are used to pay off its debts. Any money left goes to shareholders. You’ll need a validation order to access your company bank account.
The company will stop doing business and employing people. The company will not exist once it’s been removed (‘struck off’) from the companies register at Companies House.
