Company Liquidations

What is Liquidation?

Liquidation is the process that occurs when a business, company or corporate entity is closed down, wound up and struck from the Companies House register. Business liquidation can be used to terminate a company that’s in financial distress and can no longer pay its debts, or it can be used on a voluntary basis to close down a company and sell its assets for profit.

There are three types of liquidation as detailed below: creditors’ voluntary liquidation, members’ voluntary liquidation and compulsory liquidation. If you plan on liquidating your company, Irwin Insolvency has over 25 years experience in dealing with company liquidations in the UK and will assist you with all necessary procedures.

Contact our Insolvency experts for help with Liquidation

Company Liquidation FAQs

Is liquidation the best option for my company?

In the case of a CVL, liquidation is only chosen as the last resort for a company to take. This usually only occurs after the company has attempted to escape insolvency and to become solvent again through other turnaround methods. This is commonly the case with compulsory liquidation, too, as creditors only begin the process after failing to secure payments in other ways. In the case of an MVL, this decision is down to the personal choice of the directors. Before beginning any liquidation UK process, we recommend speaking to a professional insolvency advisor for more information.

What are the alternatives to liquidation in the UK?

There are several alternatives to liquidation in the UK that your company can attempt before starting the liquidation process. These include:

• Company voluntary arrangements
• Administrative receivership
• Corporate restructuring

What happens to the directors of a liquidated company

In the case of limited companies, the directors should not be held personally liable for the failure of the company. Any debts that can’t be paid off during the business liquidation process should not fall on the directors to pay. The Insolvency Service may investigate the directors however, and if they are deemed to have acted fraudulently then they may be held personally liable for certain debts.

Can HMRC still pursue a liquidated company for taxes?

HMRC is often the largest creditor when a company is liquidated, and due to recent changes in the law they are now considered preferential creditors for certain taxes such as National Insurance or Income Tax. Even once the company has been officially liquidated, HMRC can open investigations and look back 20 years into the company’s accounting records. If any evidence of wrongdoing or fraud is found, company directors can be held responsible.

Understanding the different types of Liquidation

Creditors’ Voluntary Liquidation (CVL)

CVLs are determined by the realisation that a business cannot pay debts as and when they fall due. Creditors’ voluntary liquidation is often referred to as a ‘voluntary winding-up’ and is initiated by the directors and shareholders of a business as a way to cease operations in as smooth a manner as possible.

What does the Creditors’ Voluntary Liquidation involve?

Creditor’s voluntary liquidation begins when the directors and shareholders of a company determine that their only course of action is to voluntarily liquidate the business. The company must be insolvent, no longer able to pay its debts and, commonly, the directors have attempted other methods to save the company – such as business turnaround plans or corporate restructuring – before taking this final step to cease operations entirely.

The CVL process is entirely voluntary and is achieved with the assistance of both the creditors and directors. Creditors must be notified of the impending liquidation, and they have the opportunity to liaise with the directors and block the move if they believe this is necessary. A CVL is primarily carried out by a company-appointed liquidator, who must be a licensed insolvency practitioner and who is hired to liquidate all company assets.

During business liquidation in the UK, the insolvency practitioner will continue to liaise with creditors, such as the bank, to resolve any issues and take the appropriate actions to sell the company’s assets. The liquidator will also collect any outstanding debts, handle all employee claims and issue the necessary reports to government agencies. This process is continued until the company has ultimately been liquidated.

How are companies affected by Creditors’ Voluntary Liquidation?

In simple terms, a company will cease to exist after creditors’ voluntary liquidation has been accomplished. During the process, the liquidator is required to investigate any actions taken by the directors during the time the business was insolvent. If it is found that they failed to fulfil their duties whilst trading insolvently, they may be found guilty of wrongful trading. In terms of employment, if there is no company then there are effectively no jobs, so all employee contracts will be terminated. However, it is entirely possible that the liquidator may take control of the business and retain employees from the period of trading.

Once the company’s assets have been sold off and business has been terminated, the final stage of the liquidation process is to strike the company name from the Companies House register.

Members’ Voluntary Liquidation (MVL)

A members’ voluntary liquidation (MVL) is a solvent liquidation, meaning a company is able to pay its debts in full, together with interest. This procedure is usually used when the shareholders of a company wish to retire, realise their investment, or where the company is surplus to requirements. To undertake a members’ voluntary liquidation, a company must not be insolvent.

What Does Members’ Voluntary Liquidation Involve?

A members’ voluntary liquidation process is undertaken by the company directors and shareholders after they’ve come to the decision to wind up the business. The company will still be solvent, and they must ensure that they have the permission of all stakeholders to begin the process.

Once the liquidation process has been agreed upon, a licensed insolvency practitioner is assigned to oversee the business liquidation. The insolvency practitioner must inform any outstanding creditors of the decision to wind up the company, and any outstanding debts must be paid off before liquidation.

The MVL process is very similar to the CVL process. The insolvency practitioner begins to close down the company, informing employees of the decision to liquidate while finding buyers to take on company assets.

How are companies affected by Member’s Voluntary Liquidation

The final result of an MVL is the liquidation of the company. This means that all assets will be sold off and the company will be struck from the Companies House register, thereby ceasing to exist.

Because the company is solvent when the decision to pursue an MVL is made, all outstanding creditors will be paid off through the sale of company assets. Any leftover profits from the sales are distributed amongst the shareholders, who will hope to have made a profit by liquidating the company.

Compulsory Liquidation

Compulsory liquidation is often referred to as a ‘winding-up by the court’. This court-based procedure is the ultimate sanction against a business that defaults on basic obligations to creditors. The compulsory liquidation is ordered by the court, typically following the petition of a creditor, the business or a shareholder.

What does Compulsory Liquidation involve?

A creditor must present a petition to the court, requesting that the court orders the company to enter into compulsory liquidation. Creditors as banks or lenders may choose this route in order to recover outstanding funds that are owed to them. For the application to be approved, the creditor must be able to prove that the business has been unable to make repayments and that the best course of action is to ‘wind-up’ the company. If they are successful, a liquidator will be appointed to value, market and sell the company’s assets. Once it has been approved, the only thing the business owner or director can do is seek the guidance of an insolvency practitioner to mitigate the potential negative outcomes of the liquidation.

How are companies affected by Compulsory Liquidation

The result of compulsory liquidation is the complete dissolution of the company and the automatic dismissal of all the employees. As with CVL, the powers of the directors of a liquidated company cease and the directors are not personally liable for the debts, although the Insolvency Service may investigate them once the liquidation has been completed.

How Irwin Insolvency can help your company with liquidation

Irwin Insolvency has over 25 years of experience in helping businesses throughout the UK deal with liquidations. We understand how difficult the liquidation process can be. Our friendly team of senior expert insolvency and liquidation practitioners can help you navigate business liquidations as smoothly as possible.

Call us today for free at 0800 2545122 or submit an enquiry on our contact page and a member of the team will be in touch shortly.

Learn more about Company Liquidations:

Step-By-Step Guide to the Liquidation Process

Types of Liquidation

What Happens When A Company Goes Into Liquidation?

How Long Can Companies Stay In Liquidation?

What Happens to Employees When a Company Goes into Liquidation?

What Happens to a Director of a Company in Liquidation?