Further information

Liquidation FAQs

Fast Liquidation offers a wide range of supporting information and FAQs for individuals involved in an insolvency or liquidation of a company.

Liquidation Of A Company is in essence the death of a company. A Liquidator is appointed to act instead of the Directors to wind up company insolvencies. Can you liquidate your own company? The answer is no because a Liquidation has to be undertaken by a Liquidator who is a Licensed Insolvency Practitioner or government official known as the Official Receiver.

There are two types of insolvent liquidation: Compulsory Liquidation or Creditors Voluntary Liquidation. A solvent liquidation is known as a Members Voluntary Liquidation. So if you are going to liquidate your company you will need to consider if the company is insolvent or solvent.

If you are finding that your company is finding it difficult to keep up with paying debts on time you may find some useful information here. Please feel free to contact us at your earliest convenience for free confidential advice on your situation.

Members Voluntary Liquidation (MVL) is a solvent liquidation and one of the ways to liquidate your company when the creditors can anticipate and ought to obtain 100 pence in the £. A MVL can be undertaken entirely online.

An MVL is a procedure that is not strictly an insolvency procedure because the company is solvent and the creditors will be paid in full. It is therefore not considered one of the company insolvencies procedures. It is a procedure that enables a business’ trade to be concluded and for a distribution to be provide to the shareholders or otherwise known as the members.

It is commonly undertaken for reasons of tax efficiency to obtain entrepreneurs relief in a voluntary Liquidation for capital gains tax purposes. The process looks to obtain tax clearance from H M Revenue and Customs so that the Directors and Shareholders can be confident that there will be no claims remaining against the company.

Creditors Voluntary Liquidation of a company (CVL) is one of the ways in which you as a director can liquidate your company. You will typically approach an Insolvency Practitioner to wind up the company’s affairs without any involvement by the court.

A Creditors Voluntary Liquidation is initiated by a shareholders’ resolution. It involves the end of the insolvent company and the distribution of the company’s assets to the creditors. This procedure enables directors to avoid  unsecured limited company debts that are not personally guaranteed. That is subject to the provisions associated with Wrongful Trading which is why it is so important to get advice at the earliest opportunity.

A crucial defence to any claim for Wrongful Trading is that the Directors took every step with a view to minimising the potential loss to creditors. Directors need to be able to show what steps they took, how they took them and how those steps were of benefit to creditors. Taking professional advice and documenting what was done and the reason for it, will go a long way to being able later justify the position when it is being viewed with hindsight.

A creditors voluntary liquidation is by virtue of its name ‘voluntary’. There is no compulsion on a Director to deploy this procedure. However, many Directors consider it to be the right and responsible approach to be proactive for the overall benefit of the company and its creditors by ensuring that appropriate professional advice is taken. It will enable the processes of concluding the company’s activities are swiftly undertaken instead of waiting for creditors to take their own action themselves.

As a Director you may see voluntary liquidation as an appropriate exit from a stressful situation for you to liquidate your company; whilst addressing all of the creditors, appropriately. If the limited company has liabilities that it cannot afford to pay and you would like to move on without the stress of the company’s debts hanging over your head, this type of procedure may be an appropriate option. Although it should be seen as a last resort, liquidating a company via this route can be considered a reasonable decision.

A Creditors Voluntary Liquidation is one of the main insolvency solutions for limited companies that is available.

If you want to close a company the Liquidation cost will vary from case to case and from Insolvency Practitioner to Insolvency Practitioner. A typical UK Liquidation will cost anything from around £1,000 to £7,500 to place a company into Liquidation. Whilst all cases are different, one of the cheapest ways to Liquidate a company can be to place it into voluntary winding up; otherwise known as Voluntary Liquidation. It does however very much depend on the facts of the case.

A Liquidator is a Licensed Insolvency Practitioner that is appointed either by the shareholders or the creditors of a limited company to control and run the orderly winding up of the company and to enable it to be closed down.

The duties of UK Liquidators will involve the need to undertake an initial investigation which includes a review of the financial information available and obtaining further information from third parties via the following kind of preliminary enquiries:

  • Invite creditors to bring to his or her attention any particular matters which they consider requires investigation.
  • Make relevant enquiries of accountants, solicitors and other professionals
  • Compare the statement of affairs and or the official receiver’s report with the last filed accounts in order to ascertain whether all significant assets can be identified and material movements in assets can be properly explained.
  • Conduct an initial review of the books and records in order to identify any unusual or exceptional transactions

In conducting this exercise they would have regard to the size of the business, the level of assets avaiIable to fund any identified further investigations or actions, and the materiality of any matters that may have arisen. This review will often result in further, more detailed, investigation into aspects of the financial affairs.

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.

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.

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.

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

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.

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.

Wrongful Trading is trading whilst insolvent without having reasonable prospect of avoiding insolvent liquidation. However, a Director is not necessarily liable for such loss caused if he or she took every step to minimise the loss. Two things need to happen therefore for a Director to be liable to creditors upon a company going into insolvent liquidation in such circumstances: 1) there needs to be a loss to creditors after the date at which the wrongful trading commenced and 2) the loss suffered by creditors was not minimised.

In most cases the company in question is already insolvent at the point when the foreseability of insolvency is deemed inevitable but it need not be. A company that is not insolvent can still inevitably go into liquidation. An example would be a change of market conditions that leads to a company having no future. With that in mind it is not inconceivable that a solvent company could be the focus subsequently of a wrongful trading claim by a liquidator but it would be the exception rather than the rule.

An MVL (Members Voluntary Liquidation) typically takes so long in most cases because the Liquidator is waiting for clearance from HMRC. In order to distribute in many instances the Liquidator will want clearance from HMRC for Corporation Tax purposes and any other taxes that the company was a party such as VAT and PAYE.

Without such clearance, if HMRC does come along and say that there is a liability and the Liquidator has distributed all the assets to the shareholders, then the Liquidator will have to reclaim those assets. If the assets cannot be reclaimed for any reason or the shareholders will not repay them to the company then the Liquidator is potentially personally liable for the same.

If you are unable to pay tax when it is due you must contact HMRC as soon as possible and put your cards on the table. If you are unable to make the payment, you may be able to reach an agreement with HMRC to have more time.

This will usually take the form of a lump sum payment, with the remainder of the tax liability paid in instalments over a typical period of a year. The earlier you contact HMRC, the better the chance of a Time to Pay agreement being entered into. Fail to contact HMRC and bury your head in the sand, then you may see how HMRC commences enforcement action, starting with late payment penalties and interest, and possibly end in enforcement notices, a statutory demand and even the company being wound up.

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