Company Going Into Liquidation – What Does it Mean and What Happens?

You may have some questions as to what will happen during the liquidation process if your company is going to be liquidated or about to be liquidated.

The liquidation of a company can occur in two ways; compulsory liquidation and voluntary liquidation. The assets of the insolvent company are sold during the process of both types of liquidation, and the proceeds are used to settle creditors.

The steps taken either in a voluntary liquidation or compulsory liquidation are slightly different.

However, regardless of the type of liquidation, be it compulsory or voluntary, the outcome is still the same; it involves selling all the assets, properties and holdings of the company, accompanied by total dissolution and closure of the business.

The proceeds after sales of the company’s assets and holdings are used to settle as many creditors as possible, and the company stops existing after it is struck off the companies house register.

What takes place in a compulsory liquidation?

Compulsory liquidation is a court-based process. During this type of liquidation, a petitioning party – which could be a creditor, shareholder, Secretary of State, or an official receiver – lodges a winding-up petition with the court for closure of the insolvent company so it can pay the debt it owes.

The directors can also lodge a winding-up petition, but this happens in a voluntary liquidation. Your business or company could be at risk of a compulsory liquidation if it fits more than of the criteria listed below.

• Unable to settle debts when due
• Value of all assets are below total debts and liabilities
• Taxes owed
• Failed to re-register as a private or public company appropriately
• Number of members in the company is below the statutory minimum required
• Failed to commence trading within the statutorily established period – usually one year of incorporation

During the process of a compulsory liquidation, the selling process of the assets belonging to the company begins, and every lawsuit involving the company usually ends. In a nutshell, all legal actions taken by creditors once the liquidation of the company begins are considered void.

What takes place in a voluntary liquidation?

Although the result of a voluntary liquidation is the same as a compulsory liquidation, voluntary liquidation is usually less stressful since the whole procedure is planned correctly and the directors of the insolvent company can seek guidance and assistance of an insolvency practitioner all through the liquidation process.

Approaching a liquidator to wind up the company is easy and straightforward as longs as the evidence or reasoning is relevant and can reveal how the liquidation will offer the company’s creditors the most appropriate outcome.

However, the insolvency practitioner may reject the appointment, and likely suggest more appropriate options if they discover that the directors wish to liquidate their company even though there are more suitable solutions available.

Read the step by step process of a Creditors Voluntary Liquidation

Why would a company initiate voluntary liquidation?

A company may want to initiate liquidation voluntarily when it owes a lot of debt to recover through recovery procedures such as financing, administration, or a company voluntary arrangement (CVA).

The company’s debt will only increase the more you postpone the process; thus, the company’s directors are at greater risks of being held personally reliable.

Directors are usually not held liable when a limited company cannot settle debts, but there is a possibility that the directors will be ordered to pay a contribution to the company’s asset if they are found guilty by the court for wrongful trading.

Next steps

You can avoid most of the stress associated with winding up your company after it is forced into compulsory liquidation by creditors and HMRC if you employ the service of an experienced insolvency practitioner to handle the liquidation process on your behalf.

If you want to know more about the liquidation process give me a call today for some free advice on 0800 975 0380 or email me us on [email protected]