Overview Of How Long Does A Creditors Voluntary Liquidation Take
A question routinely asked by Directors is how long does a Creditors Voluntary Liquidation take. This is not really a question deserving of the answer; how long is a piece of string. However, it does depend on the situation.
There are two key stages to a Creditors Voluntary Liquidation. There is the stage of placing the company into Liquidation and then there is the stage of the Liquidation itself when the Liquidator has been appointed.
Placing A Company Into Liquidation
It is important to note that Liquidation is a formal legal process whereby there is an orderly winding up of the company in question. It does not happen by accident and it does not happen in an instant. Detailed procedures need to be actioned.
A Creditors Voluntary Liquidation cannot happen without the Directors approving the process and going through the formal procedures. There are always exceptions but that is outside the scope of this article which deals with the vast majority of cases.
Typically, the period of time that it takes for most small companies with relatively few or modest numbers of creditors and assets to be placed into Liquidation, will be around 21 to 28 days. It can be done more quickly but the reality is that in order to do it much more quickly all the information to get a Liquidation up and running needs to be assembled and readily available. That is the subject of another article called How To Start A Liquidation (Getting Out Of The Starting Blocks).
So, if you have leapt out of the starting blocks and you have all the information that you need such as for example only the names, addresses and amounts owed to each creditor, then you may be able to crack on with it quickly.
However, there are many reasons why even a timescale of 28 days to get a company into Creditors Voluntary Liquidation might be a fraction optimistic. For example only, imagine the company concerned is a small company and a Director is struggling to find their passport or driving licence, What difference does that make you might be heard to say?
Well, it is likely that an Insolvency Practitioner will want to do certain identity checks to comply with money laundering regulations when in effect taking on a new client. If a Director in an owner-managed business is therefore struggling to find their passport and driving licence, this could delay the start of that process.
There are many other reasons for delays to the start of the process arising, such as a Director is patiently awaiting their new shiny passport to arrive from the Passport Office after being renewed. Or perhaps the company has a number of employees and there is some difficulty finding their employment contracts to calculate their holiday entitlement for the purposes of the Statement of Affairs for a Voluntary Liquidation. Or even that there is uncertainty about shareholder voting rights because of the company’s statutory books being in disarray. Etc etc etc.
During this period of placing the company into Creditors Voluntary Liquidation, it is under the control of the Directors who will hopefully be acting in accordance with the advice they receive from the Insolvency Practitioner.
How Long Is The Liquidation Period Itself?
Until the Liquidator has been appointed the Liquidation has not commenced. You cannot have a Liquidation without a Liquidator.
However, once the Liquidator is appointed the Directors lose their powers in light of Section 103 of the Insolvency Act 1986. Whilst it might sound a bit dramatic but at this stage the Liquidator is all-powerful. He or she has taken over the running of the company. He or she is now in control and responsible for ensuring that the company has a proper orderly winding-up process so that it can properly be brought to its final resting place and then be dissolved.
The period of formal Creditors Voluntary Liquidation itself will typically take a number of months. It can take a number of years in more complicated cases.
It is common for Directors unfamiliar with the processes to seek reassurances about the matter being concluded quickly. To be realistic it is simply inconceivable that a Liquidation will be finalised inside of say three months.
Insolvent Company Investigations
There is nothing certain on this earth besides arguably death and taxes. Many Directors, concerned about being disqualified as Directors for example, seek to enquire about the risk of this happening to them. No Liquidator can properly assess that risk with certainty because it is not the decision of the Liquidator; it is the decision of the Insolvency Service to whom the Liquidator must report on the Directors’ conduct as a legal requirement.
The Insolvency Service decides if it wishes to investigate the conduct of insolvent company Directors.
The Liquidator must report to the Insolvency Service within three months of the start of the Liquidation after undertaking their own investigations as required by legislation and regulations such as Statement of Insolvency Practice Number 2.
Progression Of The Liquidation
There may be many other matters that need the Liquidator’s attention that cannot be undertaken within the initial Liquidation period. Such matters might drift on for months and even years. They are too numerous and unpredictable to list here. However, one such issue that can arise causing a Creditors Voluntary Liquidation and even a Compulsory Liquidation to last for in some cases years is insolvency litigation. This can arise due to disputes between any number of parties such as the company and third parties or even its Directors and shareholders.
However, in the case of a simple small owner-managed company with few complexities and no contentious disputes arising, it should be possible to close down the Liquidation inside of a year or two. However, whilst that might be possible, even so, in some of the most simple cases problems can arise that lead to delays. As a result, no reliance should be placed on such a timescale that might simply be nothing more than aspirational.
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Disclaimer: How Long Does A Creditors Voluntary Liquidation Take?
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