If you are a creditor or director of an insolvent company or a bankruptcy, Oliver Elliot can help you liquidate a company.
Many people consider limited companies as a reliable way of trading. The liability of the members and subscribers is ‘limited’ to what they have guaranteed or invested in the company. Issues arise, however, when the company falls into debt and becomes insolvent.
To liquidate a company a skilled Insolvency Practitioner is required to help you liquidate your assets and derive the best out of your company. You might also only be looking to close a company that is solvent. In such a case, the procedures are slightly different.
To Liquidate A Company Is Not Bankruptcy
Liquidation is different from bankruptcy. Bankruptcy applies to a sole trader, individual, or partner. It does not apply to a limited company. Liquidation or ‘winding-up’ refers to liquidating a company and its assets through a formal legal process. The liquidation process does not ensure that all creditors of the company will get paid. It is instead a process to ensure that all the affairs of the company are dealt with appropriately. This includes completion, transfer, or end of all company contracts (including employee contracts). It also includes settling any legal disputes, collecting money owed to the company, selling company assets, and distributing the funds to creditors and shareholders. After the liquidation process, the company ceases to exist. Its name is removed from the register at Companies House. You can get detailed advice on the liquidation process from a qualified solicitor, accountant, your local Citizens Advice Bureau and a Licensed Insolvency Practitioner. It is worthwhile to understand your case’s specific nuances and its strengths and weaknesses before making a decision that will have significant financial and legal repercussions.
Process Of Liquidating A Company At A Glance
In brief, the process of liquidating involves five significant steps.
- An Insolvency Practitioner (or Liquidator) is appointed to ensure the smooth functioning of the liquidation process.
- The company’s assets are analysed and assessed. After this, they are ‘realised’ or liquidated.
- The creditors involved are paid in the order of priority.
- If surplus cash is left, it is distributed amongst the shareholders.
- The company is finally dissolved, and its name is removed from the registrar of companies at Companies House.
The procedure details vary slightly for different types of liquidation, but the overall framework remains the same. The time frame for the liquidation procedure depends on the Insolvency Practitioner’s skillset and the cooperation of the director of the company. If sufficient information is provided and transparency is maintained, a two-to-three-week period is more than enough.
Types of Ways To Liquidate A Company
Creditors Voluntary Liquidation (CVL): Close A Company
A company shareholders’ resolution initiates it. Used to close a company that is insolvent, it involves resolution and redistribution of assets to creditors. It is an option to consider if a limited company has liabilities it cannot afford. If a Creditors Voluntary Liquidation is the procedure used to liquidate a company, then the company’s debts are in effect dealt with by the Liquidator. To opt for a Creditors Voluntary Liquidation there are two typical conditions:
- The company should be insolvent (unable to pay its debts)
- 75% (by the value of shares) of shareholders should willingly pass a ‘winding-up resolution.’
Once the resolution is passed, to liquidate a company using a Creditors Voluntary Liquidation the following is required:
- Appoint an authorised insolvency practitioner.
- Send the resolution, including the Statement of Affairs, to Companies House.
- Advertise the passage of the liquidation resolution in The Gazette.
Members’ voluntary liquidation (MVL): Close A Company
A Members Voluntary Liquidation is an effective exit strategy to liquidate a solvent company. As a business enterprise, your company might have outgrown its purpose and is heading towards a natural end of trading. In this case, it may be that a Members Voluntary Liquidation can be used to close a company to extract assets and cash from the company in a tax-efficient manner. Other reasons for liquidating a solvent company involve retirement, stepping down from the family business with no heirs, or simply not running the business anymore. The procedure for Members’ Voluntary Liquidation includes the following steps:
- Make a ‘Declaration of Insolvency’
The Declaration of Insolvency’ is a statement saying that the directors have assessed the company and concluded that it could pay its debts.
- The declaration is then signed by a majority of directors in front of a ‘notary public’ or solicitor.
- Within five weeks of this, a general meeting with shareholders has to be called up. The shareholders must pass a resolution here for voluntary winding up.
- At this stage, appoint an authorised insolvency practitioner to take charge to liquidate the company.
- After this, the resolution will be advertised in The Gazette within 14 days of its passage.
- The resolution will be sent to Companies House within 15 days of its passage.
A Members Voluntary Liquidation can be a very tax-efficient way to close a company, particularly if the shareholders qualify for Business Assets Disposal Relief. A CVL and MVL are known as the Voluntary Liquidation procedures.
Compulsory Liquidation: Close A Company
A disgruntled creditor who is not receiving what they consider is due is usually the one to initiate a compulsory liquidation but it can be a process to close a company by the Directors. It is done via a court order application and enforced using a winding-up petition. It is governed under the Insolvency Act 1986, and the Insolvency (England and Wales) Rules 2016. The procedure is mostly managed by the Official Receiver or appointed Insolvency Practitioners. In case you cannot afford an Insolvency Practitioner, the state selects one for you. It is crucial to cooperate during the entire procedure as the director of the company. Failure to do so might lead to significant repercussions. There might also be an investigation into the trading practices of the company. The liquidator investigates for example only if the director acted in the interests of the creditors when the company became insolvent or of doubtful solvency. The director can himself apply directly to court for compulsory liquidation too to close a company. To do this, the following requirements need to be fulfilled:
- Show the court that the company cannot pay its debt of £750 or higher.
- 75% of shareholders (by the value of shares) agree that the company needs to wind up.
The further procedure includes filling in a form that confirms the details of your petition. This has to be sent to the court along with the winding-up resolution from the shareholders. After you have submitted your petition, you will have to place an advert in The Gazette. This has to be subsequently sent to the court. After this, the court gives you a date for the hearing, and an Official Receiver is put in charge of the Compulsory Liquidation at this stage. It is therefore another way for a Director to liquidate a company if they so wish.
Role Of The Insolvency Practitioner When Looking To Liquidate A Company
Smooth rules and minimal bureaucracy ensure a quick and easy resolution of the insolvency procedure. One might be tempted to forego appointing the Insolvency Practitioner in this case. However, all formal insolvency procedures the services of a licensed insolvency practitioner are required. You cannot liquidate yourself. The liquidation process itself covers almost all costs of appointing an insolvency practitioner. Even if you are looking to liquidate a solvent company, a licensed insolvency practitioner is required to ensure that the process is carried out fairly and follows all rules. He or she is also responsible for settling any legal disputes, realising the company’s assets and paying off the creditors and liquidation costs and discharging final VAT bills. Keeping creditors involved and informed about the entire liquidation procedure is required each year in the annual progress report. He or she reports to the creditors and members each year which is likely to highlight what went wrong in the business. As part of that process, the insolvency practitioner may well interview directors to assess the causes of failure.
Alternative Options To Liquidate A Company
If your company is going through financial problems, you might want to consider other options before choosing to opt for liquidation. The most common amongst these is the Company Voluntary Arrangement (CVA) or Administration. It is a credible way for the company to carry on trading and restructure itself. A licensed Insolvency Practitioner is still required to oversee the process. He or she makes and supervises arrangements for payments to creditors in a structured and phased manner. Another way he can help you is by applying for a moratorium to be implemented. This gives the business a breathing space to recover and protect itself from legal action by the creditors. Some companies also like to opt for an informal arrangement with their creditors. This includes formulating a mutually acceptable agreement for the payment of debts due.
What Next? Expert Advice Is Just A Click Away
If you have any questions or concerns about how to Liquidate A Company and how to deal with one then Contact Us as soon as possible for advice. Our expertise is at your fingertips.
Disclaimer: Liquidate A Company
This page: Liquidate A Company is not legal advice and not to be relied upon as such. If in doubt you should take independent professional advice on the facts of your case. This guide is just a guide, for information purposes only. No liability is accepted for any reliance placed upon it. This page “Liquidate A Company” may contain public sector information licensed under the Open Government Licence v3.0.
Frequently Asked Questions
The liquidator takes control of the company’s affairs and almost all powers of the directors cease. The liquidator disposes of all the company’s assets and, after paying the costs and expenses of the liquidation, distributes any remaining money to the creditors. In a members’ voluntary liquidation, the liquidator must hold a meeting of the company each year and provide details of his or her actions and dealings, and of the conduct of the winding up in the preceding year. In a creditors’ voluntary liquidation, the liquidator has to hold annual creditors’ meetings for the same purpose. He also has a duty to make a report to the Secretary of State, under the Company Directors Disqualification Act 1986, regarding the conduct of the company’s directors. As soon as the affairs of the company are fully wound up, the liquidator will hold final meetings of the company and its creditors. What are a company director’s duties in a voluntary liquidation? In voluntary liquidation proceedings, the company’s directors must:
- provide information about the company’s affairs to the liquidator and attend interviews with the liquidator as and when reasonably required; and
- look after and hand over the company’s assets to the liquidator, together with all its books, records, bank statements, insurance policies and other papers relating to its assets and liabilities
Liquidation ends when the company is dissolved after the final meeting held by the liquidator. How long the liquidation takes will depend on the circumstances of the individual case (e.g. the nature of the assets involved), but once the process has been completed the company will be dissolved and cease to exist.
A petition for the winding up of a company is usually presented to court by a creditor. Less frequently, the company itself, its directors or a shareholder may petition, as (in some circumstances) may an administrative receiver, an administrator, a supervisor of a voluntary arrangement, the Secretary of State for Business, Innovation and Skills, the Financial Services Authority, the clerk of a ‘magistrates’ court, the official receiver or a Member State Liquidator. A winding-up petition can still be presented even if a company is already in administrative receivership or voluntary liquidation.
A winding-up order can be made if the company:
- has decided that it should be wound up by the court;
- registered as a public limited company more than a year previously but has not yet been issued with a trading certificate;
- is an ‘old’ public company;
- has not begun trading within a year of its incorporation or has suspended its trading for a whole year;
- has less than two shareholders, unless it is a private company limited by shares or guarantee;
- cannot pay its debts;
- has reached the end of a moratorium without approval of a voluntary arrangement; or
- should be wound up because the court forms the opinion that this would be just and equitable
High Court that covers the area where the company’s trading address or registered office is situated. If the company’s share capital, paid up or credited as paid up, is not more than £120,000, the petition can be presented in the county court that deals with insolvency matters that covers the area where the company’s trading address or registered office is situated.
In compulsory liquidation proceedings, the company’s directors must:
- provide information about the company’s affairs to the official receiver, probably initially over the telephone, but later at a formal interview at the official receiver’s office;
- provide information about the company’s affairs to any insolvency practitioner who is appointed liquidator of the company, and attend for interview when reasonably required; and
- look after and hand over the company’s assets to the liquidator or official receiver, together with all its books, records, bank statements, insurance policies and other papers relating to its assets and debts.
To ensure that all legal requirements are met, it is usual to instruct a solicitor to deal with issuing a winding-up petition. To present a winding-up petition, you cannot just complete the petition and present it to the court. Insolvency law requires that before the court can hear the petition, statements of truth must be lodged at court verifying the winding-up petition. The petition must usually be served on the company at its registered office. A certificate of service of the petition must be filed at court at least 5 business days before the hearing. The petition must be advertised in the London Gazette at least 7 business days after the petition is served on the company and at least 7 business days before the hearing. Further statements of truth may be required if, for example, you wish to withdraw the petition. If you are a contributory and wish to present a winding-up petition, the petition form you need to complete is Form 4.14. As the procedure is different from what is outlined below you may wish to seek legal advice before taking any action. Here is more detail on the procedure:
- As the petitioner, you must complete a winding-up petition using form 4.2 http://www.bis.gov.uk/insolvency/About-us/forms/england-and-wales along with a statement of truth confirming the statements in the petition are true.
- The petition is filed at court, along with sufficient copies to be served on the company and any other parties involved, and the relevant court fee and deposit. The court then fixes the place and date when the petition will be heard.
- A copy of the petition (sealed by the court) must be served on the company at its registered office, or if this is not possible, at the company’s last main place of business, or on a company director or company secretary. A copy of the petition (sealed by the court) must be sent to any voluntary liquidator, administrative receiver, administrator, supervisor of a voluntary arrangement or Member State liquidator appointed to the company. Service of the petition must be proved by a certificate of service. You must file it in court not less than 5 business days before the hearing of the petition.
- At least 7 business days before the hearing, the petitioner must advertise notice of the petition (Form 4.6) in the London Gazette. This enables other interested parties to inform the petitioner that they wish to attend the hearing, and whether they wish to support or oppose the petition.
- At least 5 business days before the hearing, the petitioner must file at court a certificate of compliance with the rules relating to service and advertisement http://www.bis.gov.uk/insolvency/About-us/forms/england-and-wales , along with a copy of the advertisement in the Gazette.
- If the company wishes to oppose the petition, it must file its statement of truth in opposition at least 5 business before the hearing.
- On the day of the hearing, the petitioner must prepare a list, for the court, of the people appearing at the hearing using form 4.10 http://www.bis.gov.uk/insolvency/Aboutus/forms/england-and-wales.
- At the hearing, the petitioner, creditors, the company and its shareholders all have the right to be heard, and the court may also choose to hear anyone with an interest in the company’s property. The court can then:
- dismiss the petition;
- adjourn the hearing;
- make a winding-up order;
- make an interim order; or
- make any other order it thinks fit
All the forms are in the Insolvency Rules 1986 as amended, and you can get them from legal stationers – see Yellow Pages. Some of the forms are available on The Insolvency Service website at http://www.bis.gov.uk/insolvency/About-us/forms/england-and-wales where you can print them off for completion.
- Petition deposit of £1,165 towards the costs of administration of the liquidation;
- A court fee of £220;
- The costs involved in advertising the petition in the London Gazette;
- Any costs for instructing a solicitor
Generally, if you have initiated a Creditors Voluntary Liquidation or a Members Voluntary Liquidation, once the process has started you will be unable to reverse it. However, in the case of a Compulsory Liquidation, this can in some instances be reversed but it is quite rare in practice. There are strict rules that will need to be adhered to. See the post How To Rescind A Winding Up Order for further details.
A Liquidation can be stopped in theory once the process has started. In the case of a Creditors Voluntary Liquidation or a Members Voluntary Liquidation, you can simply not sign off the resolution for the company to be wound up. However, in the case of a Creditors Voluntary Liquidation, doing that could mean that if as a Director you simply trade on and the situation gets worse, you could be causing problems for yourself by way of Wrongful Trading. In the case of a Compulsory Liquidation, once the Winding Up Petition has been issued you will need to seek its withdrawal, typically by agreement with the creditor that started it, and more often than not the company will need to pay off that creditor and pay its legal costs of the petition.
Yes, it can but it is rare. However, it is not the Directors that would do the trading; it is the Liquidator who could be personally liable if the trading led to further losses. This is one of the reasons that it tends not to happen but in effect is the end of the company’s trading life.
Liquidation is a formal insolvency process under the Insolvency Act 1986. Dissolution on the other hand is the removal of a company from Companies House either by way of a compulsory strike-off or filing a form DS01 to strike the company off. To file a form DS01 has certain mandatory requirements however otherwise you could be acting unlawfully.
Can I Liquidate My Company and be the Liquidator?
No. A Liquidator needs to be independent and must not have been involved with the company that needs to be liquidated within the last 3 years in any capacity.
A Licensed Insolvency Practitioner has a duty to act in accordance with the Code of Ethics which demands the highest standards of conduct from someone who is a Liquidator and who must act in the best interests of not only the creditors but the wider public.
Can I Liquidate My Company Assets?
A Liquidation will involve a realisation of the assets and after the costs of the Liquidation have been met, then the surplus funds will be distributed to creditors. The Liquidator needs to get the best possible price for the company assets to maximise the potential realisations available.
A company’s Director cannot act as a Liquidator and it is easy to see why that is the case. The insolvency of the company that causes a Liquidation will mean that nothing must affect the safeguarding of the assets so that the losses suffered by the creditors are minimised. A Director would have a conflict of interest between their personal interests and those of the company.
Assets Sold at Undervalue
If a Director sells any of the company assets shortly prior to Liquidation then a review will need to be undertaken by the Liquidator to ensure that the sale price achieved was fair and reasonable based on market values. If a Director has undersold any of the assets, then he or she might be personally liable for any loss suffered by the company. This is important and particularly noticeable when a Director or a connected party might be the purchaser and accused of a Transaction at Undervalue.
That is why it is better to leave matters to the Liquidator to resolve so that the correct procedures are undertaken such as obtaining an independent valuation.
Investigation of the Directors’ Conduct
A Liquidator has to report on the conduct of the Director. In particular when there have been instances of misconduct and misfeasance by Directors.
There would be a huge conflict of interest with it being largely impossible for a Director to investigate their own conduct if a Director was permitted to Liquidate his or her own company. Such an investigation and relevant report where applicable is there to safeguard the public.