Shaun Barton

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Liquidation is the formal method of closing a limited company which is either insolvent, or is simply no longer required. There are three main types of liquidation; the one which is most appropriate for your company will depend on a number of factors, including whether the company is solvent or insolvent at the time of its entry into liquidation.

  • Creditors’ Voluntary Liquidation (CVL) – This is a director-initiated process which allows an insolvent company to be officially closed down with any outstanding debts written off
  • Members’ Voluntary Liquidation (MVL) – This is a director-initiated process which closes down a company which is solvent, allowing for cash and other assets to be distributed to shareholders in a cost-effective manner
  • Compulsory Liquidation (WUC) – This is a court-ordered process which leads to the company being forcibly shut down following a winding-up petition by unpaid creditors.

The liquidation process

Regardless of the type of liquidation entered into, the ultimate aim is the same – to liquidate the company’s remaining assets, deal with outstanding creditors, make a distribution to shareholders (if solvent), before having the company removed from the register at Companies House.

Once the liquidation is complete, the company will cease to exist as a legal entity. This means creditors who have gone unpaid cannot chase the company or its directors for payment; nor can any assets left remaining in the company be accessed by its former shareholders or directors.  Due to this, it is vitally important that liquidation, and ultimate closure of your company, is handled by a professional.

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The role of the insolvency practitioner

Liquidation can only be entered into under the guidance of a licensed insolvency practitioner who will assume the role of liquidator throughout the process. It will be the liquidator’s responsibility to identify and liquidate company assets, deal with all creditor claims and ongoing correspondence, as well as ensuring the company is brought to a formal end in accordance with the Insolvency Act 1986.

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Liquidation vs strike off

If you are debating whether liquidation or strike off is the best option for your company to achieve closure, you must think carefully about your company’s levels of both assets and liabilities. Strike off is only recommend for those company’s who have no debts and no significant assets.

If your company owes money to creditors that it is unable to repay, it must be placed into liquidation. Strike off is not an option for companies which have outstanding debts. Likewise if your company has assets in excess of £25,000, it is likely that liquidation by way of an MVL, will be a more cost-effective and tax-efficient way of closing the company rather than having it struck off via the dissolution process.

If you are in any doubt as to which closure option is right for your company, you should seek advice from a licensed insolvency practitioner who will be able to talk you through your options for both liquidation and strike off.

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What happens after company liquidation?

As part of the liquidation process, the appointed insolvency practitioner also has a duty to investigate the affairs of the company directors in the time leading up to the company becoming insolvent which could lead to the director being disqualified from acting as the director of a limited company in the future. In reality, however, it extremely rare for a director to be disqualified and so in the vast majority of cases the director is free to start up another limited company again if they so wish.

There are rules surrounding the re-use of a company’s name following its liquidation, so if you are looking to start up a new company to continue trading in a similar field, ensure you discuss this with your appointed insolvency practitioner who will be able to advise on this important part of insolvency legislation.

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