How Do I Liquidate My Company?
How you liquidate your company depends on the circumstances your company finds itself in.
You may need to liquidate to settle debts that you cannot afford to repay. Alternatively, you may need to liquidate your company to return its value to shareholders so you can retire or move on to another venture.
In this guide, we’ll explore the different types of liquidation, how you can enter into liquidation, and what alternatives you can consider.
Contents
What Types of Liquidation Are There?
Compulsory Liquidation
If a creditor is owed money by a company, they can seek to have it forcibly shut down by issuing a winding-up petition to the court. Control of the business is handed over to a liquidator, who sells all of the company’s assets to repay its creditors.
This process carries a lot of risk for directors. The liquidator will investigate the company’s affairs to see if the directors have upheld their fiduciary duties. This can result in misfeasance and wrongful trading charges. Directors may be made personally liable for company debts or disqualified from future directorship.
Insolvent Liquidation
Although nobody starts a business with the intention to fail, sometimes things can decline for reasons beyond our control. When this happens, it’s vital that directors consider pursuing a voluntary insolvent liquidation.
The duties of a company director fundamentally change when the business becomes insolvent. They must place the interests of creditors first rather than those of the company and its shareholders. If you fail to do this, you could be made personally liable for company debts, hit with large fines, or disqualified from future directorship.
Placing the company into a voluntary insolvent liquidation protects the position of its creditors. As a result, it protects directors from any unwanted legal or financial fallout, providing a safe exit from the business.
Solvent Liquidation
There are many reasons you may want to close a solvent company – maybe you want to retire, or perhaps you fancy a career change.
Whatever the reason, it’s important to shut down the company in the most cost-effective way possible, ensuring the best returns for all company shareholders.
Placing the company into a solvent liquidation is a tax-planning exercise, which can result in huge savings.
Can I Liquidate My Own Company?
Company liquidations must be carried out by a licensed insolvency practitioner. While this does attract some professional fees, the alternatives can be much more costly.
The proceeds of an insolvent liquidation usually cover all fees. This means you shouldn’t have to make any personal contributions. However, waiting for the company to be forced into compulsory liquidation to avoid paying liquidation fees will likely result in you paying various penalty charges.
In a solvent liquidation, the attractive tax savings outweigh any professional fees. You can consider a voluntary strike-off, but you won’t be afforded the same savings. You also run the risk of your assets being assumed by the Crown.
How Do I Liquidate My Insolvent Company?
Your company is insolvent when it cannot pay its debts as they fall due or its liabilities exceed its assets. Insolvent companies are liquidated through a process known as a Creditor’s Voluntary Liquidation, or CVL.
As the most common form of liquidation in the UK, the procedure offers many benefits:
- Relieves pressure from creditors in as little as 14 days
- Allows directors to uphold their legal duties
- Allows employees (and directors) to claim redundancy quicker
- Cost of procedure usually covered by liquidation of assets, removing personal cost
The liquidator sells the company’s assets to repay creditors. Any remaining debts are written off at the end of the process.
What Is the Insolvent Liquidation Process?
A Creditors’ Voluntary Liquidation is a fairly straightforward process. You appoint a liquidator, the liquidator sells the company’s assets, and then formally closes the business. Your role will mainly be to provide the liquidator with any necessary information.
You can read more about the process by exploring the tabs below.
Before you do anything, make sure sure you have a frank discussion with an insolvency practitioner. We’ll let you know whether liquidation is right for you. It may be that a more informal solution or a business recovery option is the more appropriate option.
Once it’s been decided liquidation is right for you, your directors’ board must collectively resolve to place the business into liquidation and formally appoint a liquidator.
To officially place the company into liquidation, you’ll need to hold a shareholder meeting. They’ll vote on whether the company should be liquidated. You’ll need 75% to vote in favour for it to go ahead.
Your creditors will be notified of your intention to liquidate and your choice of liquidator. They can choose to reject or ratify your appointed liquidator. Typically creditors give “deemed consent”, where a lack of reply is considered to be approval.
The appointed liquidator takes control of the company and sells all of its assets. The proceeds cover the liquidation fees and repay company creditors. Any remaining debts are then written off. The liquidator removes the company from the Companies House register, ending its existence as a legal entity.
How Do I Liquidate My Solvent Company?
If your company has assets totalling £25,000 or more, a Members’ Voluntary Liquidation – or MVL – is your strongest option.
A Members’ Voluntary Liquidation offers many benefits:
- Returns are subjected to Capital Gains Tax, not Income Tax
- You may also be eligible for Business Asset Disposal Relief
- Ensures affairs are properly settled
- Requires little input from directors
Capital Gains Tax only applies to the profit made on the sale of an asset, not the whole amount received. For example, if you sell an asset worth £10,000 for £15,000, only the £5000 could be taxed. Business Asset Disposal Relief halves the rate of Capital Gains Tax from 20% to 10%.
This results in huge savings. Members can receive returns in around 6 months.
What Is the Solvent Liquidation Process?
A Members’ Voluntary Liquidation is a straightforward process. You must make a Declaration of Solvency – formally declaring you can pay all debts within 12 months – before appointing a liquidator. The liquidator takes care of the rest, providing shareholders with returns and formally closing the company.
You can learn more by exploring the tabs below.
Our team will assess your company’s finances and let you know whether an MVL is the most cost-effective option for you. Businesses with assets below £25,000 may want to consider a voluntary strike-off instead.
If an MVL is deemed to be the right choice for your business, your directors will need to make a formal Declaration of Solvency. This is a statement that your business can satisfy all of its debts within the next 12 months.
The directors and shareholders must collectively resolve to wind up the company. You’ll need the backing of 75% of your shareholders to do so. The liquidator is formally appointed, allowing proceedings to begin.
The company is liquidated and all returns are given to members. Returns will be scheduled and planned to take full advantage of the tax reliefs and allowances available. The company is then formally removed from the register.
What Happens After I Liquidate My Company?
Once your appointed liquidator has finished selling the company’s assets, it will be removed from the Companies House register. This ceases its existence as a legal entity, formally settling its affairs.
Directors will be able to move on to their next venture, leaving behind any debts, provided they weren’t given as personal guarantees.
Additionally – in the case of insolvent liquidations – directors may be able to claim a redundancy package from the government. The average payout is £12,000. This can be a major lifeline if the company was your main source of income.
Can I Start Another Company After Liquidation?
Pursuing the appropriate form of voluntary liquidation ensures the company’s affairs are settled properly, minimising the risk of director disqualification. This means that directors are free to create a new company after liquidating their old one.
However, there are some things to keep in mind.
Generally, following a liquidation, you are restricted from reusing the same – or a similar – company name for a period of 5 years. For example, if your company was called ‘ABC Ltd’, you couldn’t open a new one called ‘ABCD Ltd’.
Using a name that suggests an association with the old company could result in fines or being made personally liable for the old company’s debts. If you want to reuse the name, you’ll need to apply through the courts.
What Are the Alternatives to Liquidation?
If your company is insolvent but you don’t want to go through with a liquidation, there are a few other insolvency procedures that you can consider. These solutions will allow you to uphold your duties as a director while offering your business a chance at recovery.
Company Voluntary Arrangement
A Company Voluntary Arrangement, or CVA, is a repayment plan between your company and its creditors. It protects your company from closure so long as you keep up with your monthly repayments. Outstanding debts can be written off at the end of the CVA. You’ll need the backing of 75% of your creditors to enter into a CVA. Our team can help you do this.
Administration
This places control of the company in the hands of an administrator. The administrator will seek to save the company before defaulting to selling or liquidating it. While the company is in administration, it will be protected from recovery action, and any debts will be frozen. Administration is often used to get a company into a position where it is stable enough to be accepted into a CVA.
Speak to an Expert
If you’re considering liquidation, it’s essential you speak to an insolvency practitioner as soon as possible.
Our team can help you decide whether liquidation is the right option for you or if you should consider another option. Liquidations must be carried out by a licensed insolvency practitioner.
Get in touch to book a free consultation today.
FAQs
These are both liquidation processes, but are applied to different kinds of businesses. A CVL is used to liquidate an insolvent business, which cannot afford to repay its debts. An MVL is used to liquidate a solvent business, which wants to return its value back to shareholders.
You can enter into a CVL in as little as 14 days. Once the liquidator is appointed, your involvement is minimal.
From start to finish, a CVL can take anywhere between a 12-24 months to completely liquidate the company. This depends on the size and complexity of the business.
Directors and shareholders can usually expect to see returns in around 6 months. This may take longer depending on the complexity of the business or the nature of its goods.
