Liquidation of a company – process and advice

Before you make a decision about which liquidation process is right for your company you must determine whether your company is solvent or insolvent. There are two tests that are a good indicator of a company being insolvent:

• The Balance Sheet Test – If the company liabilities are greater than the value of company assets
• The Cash Flow Test – If the company is struggling to make payments as and when they fall due

Liquidation of a company if it is insolvent is usually done via a Creditors’ Voluntary Liquidation (CVL) 

What is a Creditors’ Voluntary Liquidation?

It is a formal process used to wind up a company that has become insolvent. A CVL is a director led process which sees the directors taking control of their insolvent company by placing it into Creditors’ Voluntary Liquidation. The purpose of a CVL is for the appointed Liquidator (must be an Insolvency Practitioner) to sell any remaining company assets and, where possible, distribute the proceeds of the sale to company creditors. The liquidation process can also be used as a means to allow the directors the opportunity to purchase the assets and goodwill of the business with a view to starting a new company. 

Who can use a CVL?  

Any insolvent company is eligible for this process. 

Key advantages of a CVL for the liquidation of companies:

• A director led process meaning that you will have the ability to choose the Insolvency Practitioner that you would like to be appointed as Liquidator. In a Compulsory Liquidation the Official Receiver is appointed by the creditors or the court
• The appointed Liquidator will have a duty to achieve the best results for company creditors and will be able to guide you on how best to do this
• The appointed Liquidator will have to act in accordance with the rules set out by the Insolvency Act and Rules 1986
• Further legal action against the company is unlikely once notice has been given that the company will enter a CVL as it will be a waste of money for the creditor
• Company employees will be able to claim unpaid wages, notice pay, holiday pay and redundancy pay from the government as part of the liquidation process
• You will be given the opportunity to purchase the company assets and/or goodwill for use in a new company
• At the end of the process Companies House will start the process of removing the company from the register
• The appointed Liquidator will deal with all company communication on your behalf which removes creditor pressure

The liquidation process 

Step 1: Take advice on all of the options available to you for the liquidation of a company. We offer a free initial meeting or free telephone advice

Step 2: Instruct your chosen Insolvency Practitioner to commence the Creditors’ Voluntary Liquidation process. At this point, the Insolvency Practitioner will become the point of contact for your creditors and will deal with all company communication going forward. The Insolvency Practitioner will then prepare the paperwork from that point forward – including steps 3 to 6 below.

Step 3: Hold a meeting of directors to resolve to place the company into Liquidation.

Step 4: Arrange a meeting of shareholders and a meeting of creditors.

Step 5: Give notice to shareholders and creditors of the meetings in the liquidation process.

Step 6: The proposed Liquidator will assist in the preparation of statutory paperwork including a Statement of the Company’s affairs.

Step 7: Attending the meeting of shareholders and the meeting of creditors. A vote will be held and will determine whether the company be formally placed into Creditors’ Voluntary Liquidation

Step 8: As part of the liquidation process, the appointed Liquidator of the company will notify Companies House that the company is now in Creditors’ Voluntary Liquidation

Step 9: Once appointed by the members and creditors the Liquidator has three main duties:

1. To realise the company’s assets
2. To agree the claims of the company’s creditors
3. To investigate the company’s affairs and the director’s conduct

How can we help? At Liquidation.co.uk we have helped thousands of companies wind up their affairs with the liquidation of a company using the Creditors’ Voluntary Liquidation process. We offer a professional service at a very competitive price and we are able to advise you through the liquidation process by Zoom call or telephone or meet at a time and location that is convenient to you.

Liquidating a solvent company via a Members’ Voluntary Liquidation (MVL) 

What is an MVL? 
An MVL is used when the shareholders wish to close down a solvent company (ie one that can pay its creditors in full and assets exceed liabilities). This process is often used in scenarios such as directors wishing to retire or the company, simply, no longer having a purpose. 

Who can use a Members’ Voluntary Liquidation?  
Any solvent company is eligible for this process 

Why use an MVL? –  the key advantages

• Tax benefits – since the introduction of the Extra-Statutory Concessions Order 2012 any distribution made to shareholders in the closure of a solvent company which is greater than £25,000 will be treated as income for tax purposes UNLESS an Members’ Voluntary Liquidation is used. If an MVL is used then these distributions should be treated as capital receipts and will receive a lower rate of tax (you must obtain tax advice from your accountant).
• An MVL should also be eligible for the use of Business Asset Disposal Relief (formally Entrepreneurs’ Relief) which is a personal tax relief and can bring the tax rate applied to shareholder distributions down to as low as 10%
• A Members’ Voluntary Liquidation can be used as part of a solvent restructuring through a S.110 agreement
• In a solvent liquidation, the directors conduct will not be investigated

The Members’ Voluntary Liquidation – the liquidation process 

Step 1: Take advice on all of the company liquidation options available to you. We offer a free initial meeting or free telephone advice. You will also need to take advice from your tax advisor

Step 2: Instruct your chosen Liquidator (Insolvency Practitioner) to commence the Members’ Voluntary Liquidation process

Step 3: All outstanding H M Revenue & Customs returns to be filed

Step 4: Hold a Board Meeting

Step 5: Prepare a Declaration of Solvency

Step 6: Provide notice to shareholders of the General Meeting

Step 7: Hold the General Meeting at which the shareholders resolve to place the company into Liquidation and formally appoint the Liquidator

Step 8: Notification of the appointment of Liquidators will be given to Companies House and advertised in the London gazette

Step 9: We will request that the funds in the company bank account be transferred to a designated case account

Step 10: The cash will be distributed to company shareholders upon receipt of the funds from the bank

Step 11: We will request confirmation from H M Revenue & Customs that there are no outstanding issues

Step 12: We will request that Companies House begin the process to remove the company from the register 

How can we help with the liquidation of companies that are solvent? 

At Liquidation.co.uk we have helped thousands of solvent companies go through the liquidation of a company using the Members’ Voluntary Liquidation process. We offer a professional service at a very competitive price and we are able to advise you by Zoom or telephone or meet at a time and location that is convenient to you.

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