Liquidation is a legal process that results in business closure. It involves appointing a licensed insolvency practitioner (IP) but the correct liquidation procedure depends on whether your business is solvent or insolvent.
Liquidate my insolvent restaurant
If your restaurant business is insolvent, the best way forward is to enter Creditors’ Voluntary Liquidation (CVL). This offers you the opportunity to close the business according to statutory requirements.
In this instance, your business assets are sold at a liquidation auction and the insolvency practitioner uses the funds to repay creditors. Any debts that remain are written off and the company then closes down.
The only other alternative to Creditors’ Voluntary Liquidation is to wait for a creditor to forcibly wind up your restaurant. This should be avoided, however, as it has serious ramifications for you as a director and could lead to personal liability for your business debts.
Liquidate my solvent restaurant
If your business can pay its bills as they fall due and the value of its assets exceeds that of its liabilities, you can close it by entering Members’ Voluntary Liquidation (MVL). The board must pass a resolution and then appoint a licensed insolvency practitioner.
The IP liquidates the restaurant’s assets, winds up your business affairs, and removes the company name from the official register, after which it ceases to exist. This is a highly tax-efficient procedure if your business has £25,000 or more in retained profits as distributions are subject to Capital Gains Tax (CGT) rather than income or dividend tax.