Different Types of Liquidation in 2022

What is company liquidation and what does it mean for your business?

Company closure can be the result of many different circumstances and ultimately can become a voluntary or compulsory process.

Liquidation, also known as ‘winding up’ is when an unwanted or insolvent company comes to an end. This process usually occurs when a company cannot pay its debts anymore when they are due. Liquidation can apply to small companies as well as large, public entities. 

If you are a director you can propose liquidation if your company cannot pay any of its debts, or if all of the shareholders agree. The effect of liquidating your company means that it will stop trading and the directors lose all power, they are then replaced by a liquidator instead. The liquidator’s job is to release assets of the business to all creditors, and dismiss all of the employees. 

Whether a creditor is forcing your company into closure, or you have chosen to ‘wind up’ your business. Forbes Burton’s team of experts can advise you on the best way to move forward. 

Below we have listed the different types of company liquidation and their meanings:

Understanding the different types of company liquidation

Solvent Liquidation

Solvent Liquidation, also known as a Members Voluntary Liquidation, is when the directors and shareholders have the choice to close their limited company down, with the intention of withdrawing cash or assets in a tax-efficient way. This process can take anywhere between six and 24 months, but this of course depends on the company’s current position.

Insolvent Liquidation

Insolvent liquidation or Creditors Voluntary Liquidation, means that your company is having to close because it can’t pay its bills or debt anymore, or the value of the business assets is less than its liabilities. Similar to solvent liquidation, this process roughly takes between 6 – 24 months. 

Compulsory Liquidation

Compulsory liquidation is a court-based process under which the assets of a company are released and distributed to the company’s creditors. This process is started by the filing of a petition at court. Once your company has gone into compulsory liquidation you will be banned for 5 years from forming, managing or promoting any business with the same or similar name to your previous company.

What happens after you’ve liquidated your company?

Once your company has been liquidated it will be ‘struck off’ the listings of Companies House. All of your assets will then be used to pay off any outstanding debts, if you have any money left after this it will go to the company shareholders. After your business has gone into liquidation you cannot continue the company at a later date. Once the decision has been made, there isn’t a route back for the company and its directors unfortunately. 

Are you looking for liquidation advice?

Are you struggling to pay your debts, or have a general question about business liquidation or insolvency then get in touch with our experts.

We are here to help and guide you through business decisions and offer you advice. Get free, no-obligation advice from our business advisers here.