Liquidation – The Facts

Looking to close down your company and stop all the pain, worry and stress? If you’re worried about personal liability of the company’s debts, or perhaps creditors are putting the pressure on, then perhaps it’s time to consider Creditors Voluntary Liquidation (CVL).

A voluntary liquidation, which can be either a member’s voluntary liquidation or a creditor’s voluntary liquidation, is brought about by resolution of the company and is conducted by a qualified practitioner. The other kind of liquidation is compulsory liquidation, which is brought about by an order of the court and can be conducted by the Official Receiver or a qualified practitioner.

Both of these processes aim to stop a company from trading and to liquidate the company’s assets for the benefit of the company’s creditors.

Normally in order for the company’s creditors to consider a CVL, or for the directors to consider Compulsory Liquidation, the company will typically have no cash and be unable to pay its debts.Very often the directors do not believe in the long-term viability of the business and are concerned about the possible implications of wrongful trading.

Creditors Voluntary Liquidation is only appropriate under certain circumstances. These may be;

* When your business is insolvent

* If you as a director do not believe the business is viable

* If the market conditions for your company’s product or service have seriously declined

* When the directors have lost all will to keep going

Liquidation FAQs

Can we still use the old company’s name?

The court or liquidator must agree for this to be permissible but it is a criminal offence to pass a new company off as the old one.

What happens to my employees under a Compulsory Voluntary Liquidation (CVL)?

Employees are entitled to finances under a Government fund which is capped at £330 per week.

Can we pay our employees and then liquidate our company?

No; this is potentially illegal and it would be seen as a preferential payment under S239 of the Insolvency Act 1986.

Can we still liquidate our company if a creditor has issued a winding up petition against our company?

Yes; if a hearing date has not already been set. If it has then the answer is no, unless the creditor agrees to withdraw the petition.

CVL Liquidation – the process and procedure

You and your directors will have to hold an extraordinary general meeting, inviting all the company’s shareholders. You need to tell them that you believe the company to be insolvent and that you cannot pay the debts when they are due. As a director it is advisable to suggest that the shareholders refuse to take further credit in order to avoid personal liability and advise them to place the company into voluntary liquidation.

A resolution should be passed confirming the company’s intent to cease trading and nominations are heard for the role of liquidator.

The liquidator must prepare a statement of affairs and produce a report called a directors report. This is for the benefit of creditors, showing how the company got into the present situation.

The liquidator then advertises the liquidation in a newspaper and writes to known creditors. Directors should now stop liaising with creditors as all contact must go directly through the liquidator.