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- 1 What Is Liquidation Of A Company?
- 2 Creditors Applying For A Liquidation
- 3 How a liquidation is managed
- 4 Liquidating a solvent company (members voluntary liquidation)
- 5 Liquidating an insolvent company
- 6 Compulsory liquidation
- 7 Director’s responsibilities during liquidation
- 8 What happens to a director after insolvent liquidation?
- 9 Reusing the company name after insolvent liquidation
- 10 What Next? Expert Advice Is Just A Click Away
- 11 Recent Posts / View All Posts
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What Is Liquidation Of A Company?
Overview Of Liquidation Ultimate Guide
Liquidation is the process through which a limited company legally is wound up.
It is important to understand what that really means. It is the death of the company. It is however not sudden death, it is typically a slow drawn-out process that in some cases can take literally years. Certainly, you can expect even a simple a Liquidation to typically take several months.
Unlike an individual whose life ceases by virtue of his or her organs stopping working that does not happen in a Liquidation. Instead, legislation set out in the Insolvency Act 1986 lays down the rules for a company to be wound up.
Only when the company is removed (‘struck off’) from the register at Companies House, will it truly be closed down. Even then in some instances, it can be reinstated.
You cannot liquidate a company without undertaking procedures set out in the legislation. There are different procedures depending upon the type of Liquidation that is proposed. A voluntary Liquidation does not involve the Courts whereas a Compulsory Liquidation will require the Court’s involvement.
The difference between voluntary Liquidation and Compulsory Liquidation follows on from the name. In voluntary Liquidation the company is not being forced into Liquidation it is voluntarily being put into Liquidation at the request of either the shareholders or the creditors. On the other hand in a Compulsory Liquidation, the company is being forced into Liquidation at the insistence of the creditors and in some cases by the shareholders and Directors.
Once the process is triggered the rules do not follow the procedures in the Companies Act 2006 because in effect the Insolvency Act 1986 takes over.
Effect Of Liquidation
Liquidation will stop the company from doing business and employing people.
So when a company goes into Liquidation in almost all cases it will stop trading.
Types of Liquidation
There are three ways a company can be liquidated. Liquidation does not always mean that the company is in financial trouble, very often it is a tool to close down a very successful company.
For a solvent company whose directors have decided to stop trading it’s members voluntary liquidation. Alternatively, you can choose to close your company by striking it off the Companies Register.
For an insolvent company, directors can wind up their company through a creditors voluntary liquidation or a compulsory liquidation.
Creditors Applying For A Liquidation
Creditors can also apply to wind-up an insolvent company up through compulsory liquidation. Find out how creditors apply for compulsory liquidation.
If your company is liquidated because it’s insolvent, you will need to cooperate with the liquidator and follow certain rules.
If the company has been dissolved you will need to restore the company before applying for liquidation
If you’re a director of a company that has gone into insolvent liquidation, you’ll be banned for 5 years from forming, managing or promoting any business (including companies) with the same or similar name to your liquidated company. There are some exceptions that allow you to reuse a company name.
How a liquidation is managed
- making sure all company contracts (including employee contracts) are completed transferred or otherwise ended
- ceasing the company’s business
- settling any legal disputes
- selling any assets
- collecting money owed to the company
- distributing any funds to creditors
- repaying share capital to shareholders
- dissolving the company and removing it from the Companies House register
Liquidating a solvent company (members voluntary liquidation)
If your company is ‘solvent’ (can pay its debts) and:
- you want to retire
- you want to step down from the family business and nobody else wants to run it
- you don’t want to run the business any more
You can either:
- apply to get the company struck off the Companies Register
- start a members’ voluntary liquidation.
Find out how to apply for members’ voluntary liquidation.
You’ll be asked to make a ‘declaration of solvency’. It’s a criminal offence to do this if you know the company is insolvent.
Liquidating an insolvent company
A director can apply to wind up an insolvent company in two ways:
- creditors’ voluntary liquidation
- compulsory liquidation
Creditors’ voluntary liquidation
A director can propose a creditors’ voluntary liquidation if:
- the company can’t pay its debts (it’s ‘insolvent’)
- enough shareholders agree
Find out how to apply for a creditors’ voluntary liquidation.
In a voluntary liquidation the shareholders will appoint and pay for an authorised insolvency practitioner to act as liquidator. The company’s creditors can propose an alternative liquidator and this will usually override the decision made by the shareholders.
The liquidator will take control of the company’s affairs and the directors:
- no longer have control of the company or anything it owns
- can’t act for or on behalf of the company
How can you spot if a company has gone into creditors voluntary Liquidation?
You can spot if a company has gone into creditors voluntary liquidation by searching for it at Companies House. For example if you found that a company is in Liquidation go to Companies House “Search the register” page and put in the name of the company.
If we picked a company called K-Lou London Limited for example only here is what you would see:
In order to find the type of Liquidation K-Lou Limited is in you need to go into K-Lou Limited Limited at Companies House and you will find the following:
Now you are nearly there to discovery of what kind of Liquidation K-Lou Limited is in based on the publicly available data at Companies House.
Next however you need to then click of the Insolvency tab in grey here:
And voila, you can now see the type of insolvency or in this case, Liquidation that K-Lou London Limited is in ie. it is in Creditors Voluntary Liquidation.
As a director of a company you can apply to wind up the company (compulsory liquidation) if:
- you can show the court the company can’t pay its debts of £750 or more (it’s ‘insolvent’)
- enough shareholders agree
- you can give the court enough reason why the company should not continue
Compulsory liquidation can only take place when a winding up petition is made to and accepted by the court. If you can’t get the shareholders agreement the directors can apply but the petition must be presented by all directors if there is more than one.
If you want to wind-up the company because you are in disagreement with the other directors you will only be able to do this if you are a shareholder or a creditor.
As a shareholder you must show why the company should not be allowed to continue. You should get advice if you are in this position.
Creditors can also apply to wind-up an insolvent company up through compulsory liquidation.
If you are a creditor of the company, as well as a director or shareholder, you can apply to put the company into compulsory liquidation because the company can’t pay its debts. As you will be doing this as a creditor you don’t need the other directors to join the petition.
Apply for compulsory liquidation
If the company has been dissolved you will need to restore the company.
The fees are:
- £280 – court fee
- £1600 – petition deposit
- costs to advertise the petition in The Gazette
Getting shareholders’ agreement
You must call a meeting of shareholders and ask them to vote for the court to wind up the company.
75% (by value of shares) of shareholders must agree to the winding-up to pass a ‘special resolution for winding-up’.
Completing the winding up petition
Once the resolution is made, or you can set out why the company should be wound-up you need to complete a winding up petition.
The petition should include the details outlined in Rule 7.5. A template form is available for applications to the High Court. You also need to provide a statement of truth that includes the details outlined in Rule 7.6.
Where to send the petition
You should make 3 copies of your petition.
If the Companies House register shows your company has a ‘paid up share capital’ of more than £120,000, send the petition to the High Court.
The High Court
7 Rolls Buildings
If your company’s ‘paid up share capital’ is less than £120,000, use the court finder to find a court dealing with insolvency.
You must use the court nearest to your company’s registered office.
The court hearing
If the court accepts your petition, they’ll arrange a date for a hearing. This will be entered onto the petition before you deliver it.
After you apply
If you apply as a contributory/ shareholder you must:
- deliver (‘serve’) a copy of the petition to the company
- provide a certificate of service to the court confirming that the petition has been served on the company.
In all cases you must send a copy to the relevant liquidator, administrative receiver, administrator or supervisor if the company is involved in:
- voluntary liquidation
- administrative receivership
- an administration order
- a company voluntary arrangement
Announce the hearing
When you’re given a date for the hearing, you must formally announce when and where it will take place.
- Place an advert in the Gazette containing the details outlined in rule 7.10, at least 7 working days before the hearing.
- Send a copy of the advertisement and a certificate of compliance containing the details outlined in rule 7.12, to the court at least 5 working days before the hearing.
- Give a list of everyone who will be attending to the court containing the details outlined in rule 7.15, by 4:30pm on the day before the hearing.
After the hearing
If the petition is successful, the court will issue a winding-up order.
The court will put an official receiver in charge of the liquidation. They’ll start the process of turning the company’s assets into money that can be used to pay the company’s debts.
Other creditors can register to claim the money they’re owed.
Winding-up the company will also help your employees get money they are owed even if the company has no assets.
Director’s responsibilities during liquidation
You must help the official receiver when the company you’re a director of is liquidated as a result of insolvency.
Being interviewed by the official receiver
After your winding up order is approved you will be invited to an interview with the official receiver, this will usually be a face to face interview but may be by telephone.
If your company has been liquidated by one of your creditors the official receiver may also contact you by telephone to find out if there is anything that needs to be sorted out urgently.
You must attend the interview and cooperate with the official receiver. The more organised you are, the more straightforward the process will be.
Before the interview, telephone the official receiver to confirm or rearrange the appointment; let them know if:
- you require special facilities
- there is anything that needs to be sorted out urgently
- you need more time to gather the paperwork for the meeting
If you have been sent a questionnaire, fill it in, noting anything you don’t understand (if you are having a telephone interview, return it by the date given).
Collect together all the paperwork you have been asked to take to the interview or have with you during the telephone call.
Face-to-face interviews may take 2 to 3 hours.
After you arrive:
- you’ll be seen in a private room no later than 5 minutes after the appointment time
- your questionnaire will be checked or you’ll be asked to fill one in
- you’ll be interviewed by an examiner about the circumstances that led to the insolvency
- you’ll hand over all the company’s financial records and papers which you hold – these will be examined and recorded either there and then or at a later date, and will be kept by the official receiver
- you’ll have a chance to ask questions about the liquidation process
If you can’t provide all the necessary information or the examiner needs more time to complete their enquiries, you may be asked to another appointment.
After the interview, the official receiver will send a report to your creditors showing the company’s assets and debts. This usually takes less than 8 weeks, though it can take up to 12 weeks.
They will also report to the insolvency Service if they think you may have broken the law in your financial dealings.
What happens to a director after insolvent liquidation?
You can act as a director of another company unless you are:
The official receiver will investigate why the company became insolvent and whether this was caused by unfit conduct by any of the directors. If unfit conduct by a director is revealed, the official receiver can apply to the court for a disqualification order under the Company Directors Disqualification Act 1986. A disqualification order lasts for a period of between two and fifteen years and means the director can’t do any of these things without permission from a court:
- act as a director of a company
- take part, directly or indirectly, in promoting, forming or managing a company
- be a receiver of a company’s property Find out more about director disqualification.
Reusing the company name after insolvent liquidation
If you’re a director of a company that has gone into insolvent liquidation, you’ll be banned for 5 years from forming, managing or promoting any business (including companies) with the same or similar name to your liquidated company. This arises from the Phoenix Company syndrome.
A banned name includes:
- a name the company was known by in the 12 months before liquidation
- a registered name at companies house
- a trading name
- any similar name that suggests an association with the liquidated company
This restriction applies to both registered directors and people who have acted as a director in the 12 months before liquidation.
If you break these restrictions you could be:
- prosecuted and imprisoned
- made personally responsible for debts gained during the time you managed the business using the banned name
You can also be prosecuted and made personally responsible for company debts incurred whilst using the name if you act on the instructions of someone you know is breaking these restrictions whilst you’re:
- a director or manager of another company
- involved in the management of another business
This is because you’re helping them to break the law.
There are three exceptions where the above restrictions don’t apply as outlined below. You should take professional advice so you fully understand how the restrictions and exceptions apply to you.
The company is sold by the liquidator
You may use the name if the business of the insolvent company is sold by a licensed insolvency practitioner and you provide legal notice that you intend to act in the management of the new business.
You must also send a copy of the notice to all creditors of the company known to you or whose names and addresses could be obtained by reasonable enquiries no later than 28 days after completion of the sale.
You ask the court for permission
You can ask the court for permission to use the company name within 7 days of the liquidation. This will allow you to use the company name for:
- up to 6 weeks from the date of the liquidation or
- up to the point where the court decides whether to give you permission
If the court hasn’t made its decision within 6 weeks, the restriction will again apply to you. You can apply for permission after 7 days have passed and up to 5 years following the date of the liquidation. But you won’t be able to use the name until the court gives you permission.
You can make the application in any court which has jurisdiction to hear the application.
You must also send a copy of your court application to:
The Insolvent Targeting Team – s216(3)
Investigations and Enforcement Services
The Insolvency Service
4th Floor Cannon House
18 Priory Queensway
The name is already in use
You are involved with another company which has used the same or similar name as the liquidated company for the 12 months before the date of liquidation. You do not require permission of the court to keep using the name in connection with that company provided the company has:
- used the name continuously for the 12 months before the liquidation, and
- traded for the whole of the 12 months before the liquidation
More information can be found in our article Re-Use Of Company Names.
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