How to Liquidate Your Company
If your company is experiencing financial difficulties or is on the verge of insolvency, company liquidation may be the best option. It is critical that you contact a professional insolvency expert to discuss your options. As a director you have a duty to act in the best interests of creditors and not make the situation worse.
You may wish to liquidate your company voluntarily as you no longer have any use for the company or perhaps you wish to retire.
What options do I have for liquidating a company?
There are three primary liquidation processes. They are as follows:
Creditors’ Voluntary Liquidation (CVL): A CVL is used when a company is insolvent and unable to pay its liabilities; the process is led by the Board of Directors, and creditors are involved throughout.
Members’ Voluntary Liquidation (MVL): This is used when a company is solvent but the board of directors wishes to close it down.
Compulsory Liquidation: This is when a creditor who has not been paid petitions the Court to force your company into liquidation. You should really try and avoid this last process if you can!
All these processes can only be actually carried out by a licensed insolvency practitioner. You cannot liquidate the company yourself.
To begin the liquidation process, you must first understand why you have decided to liquidate:
- Is your company solvent or not.
- What are the Company’s assets?
- Who is owed money by the company?
- Is this a temporary cash-flow problem that can be resolved (i.e., there is a viable underlying business)?
- Are creditors taking/threatening to take action?
- What is the creditor’s attitude? Will they support/allow for additional payment time?
- What are the names of the registered directors?
- Who are the investors?
- Who are the secured creditors (charge holders)?
There is a lot to consider before you can liquidate your company. An Insolvency Practitioner (IP) will ensure that the process runs smoothly and will alleviate the stress of dealing with debts and creditor pressure.
How to Dissolve a Company When You Don’t Have Any Money
Liquidation is an expensive process. The costs are payable from the Company’s assets (with the approval of creditors) or, in the absence of assets, by the Directors personally.
If your business lacks funds and/or assets, your options may be limited; however, the following two solutions may be available:
Your company has no debts.
In this case, your company can be dissolved and removed from the Companies House register. This should be a simple process; simply submit a DS01 form to Companies House, signed by the directors.
Your request for company dissolution will be published in the London Gazette, and if no creditors object within two months, your company will be officially dissolved.
Your business does have debts.
If your company is in debt, whether to HMRC or to other creditors, a dissolution would almost certainly be denied. If you are unable to pay your debts and do not take action to voluntarily liquidate your company (perhaps because the company has no assets and you lack personal funds to cover the costs involved), creditors may file a winding-up petition against you.
The Company would then be wound up by the Court at a later date. The Official Receiver (OR) would be appointed as Liquidator, and the Directors would be required to attend investigation hearings and cooperate with the OR in order to explain why the Company had been wound up.
If your company has money and/or assets, you should investigate Company Voluntary Liquidation or Administration.
How much does it cost to Liquidate a company.
Company liquidation must be carried out by a licenced Insolvency Practitioner, so their fees must be factored into the total cost.
The cost of liquidating a company varies greatly depending on the issues involved (for example, the number of creditors/employees, directorships/shareholding, asset types and locations, and so on). The more complicated the process, the more work your liquidator will have to do.
Depending on the circumstances, a director may be able to claim redundancy in the liquidation, which may be used to cover the costs in the absence of any assets. Although this can only happen if the director is properly employed and not just drawing a minimum salary.
How long does it take to liquidate a company?
Appointed liquidators typically take a few weeks to place your company into liquidation. There is no set time frame for how long the company liquidation process may take; the length of the process is highly dependent on your specific circumstances.
If at all possible, a Liquidator will try to complete the liquidation and stop acting before the first anniversary of the appointment.
Can I set up a new company straight after liquidation?
Yes, technically, you can liquidate a company and start from scratch with a completely new business venture. To avoid trouble with the courts, you must first follow a stringent set of rules.
If you liquidate a company and want to start again, you should be aware of the following potential issues:
You must not become a director or manager of a company with the same or similar name as your liquidated one; if your liquidated company was in debt, you may be required to provide a security deposit to HMRC;
Because of your credit history, you may have difficulty obtaining credit.
When starting a new company after liquidating one, there are numerous factors to consider, including transferring employees, if any, previous personal guarantees, and the purchase of your old company’s assets.
The most important thing to realise is that you must not transfer the assets from the old company to the new one without paying a fair price. It is best that you get a valuation from a chartered surveyor. You could be caught out by the insolvency rule about a “transaction at an undervalue”. Any purchase can be reversed by a liquidator later.
You should also be very cautious about making any payments prior the liquidation to your creditors or youself. You could be caught out by the insolvency rule about a “preference” so don’t pay off your mate ahead of other creditors. A liquidator can reverse this transaction also.
