Closing your business through the process of liquidation

How Do I Commence Liquidation Ltd Company?

How do I commence liquidation Ltd company? Author: John A Waller, Consultant. Updated: July 4th, 2024.

Simple!

Liquidation means your limited company officially closes. However, the process requires a licensed insolvency practitioner to dispose of all company assets and remove the company from the register at Companies House.

Which option then depends on whether your limited business remains solvent or insolvent.

Is your company under creditor pressure?

Is it subject to legal action and compulsory Liquidation?

What are my closure options?

Liquidation Ltd Company- How do I liquidate my limited company? 

Can I liquidate my Limited Company?

You remain unable to liquidate your own limited company registered in the UK.

However, whether your limited company remains insolvent or solvent, you must use a licensed insolvency practitioner to perform liquidation ltd company.

However, since the COVID-19 pandemic, unless the Liquidation is contentious, there is no reason to meet to liquidate your limited company, providing you have email and access to a computer.

Commencing the process of liquidation can be complicated, requiring a licensed insolvency practitioner registered in the UK to ensure that the proceeds from the realisation of the company’s assets remain paid out to the liquidated company’s creditors. Even when a company has no assets and relatively small debt, the Liquidator must assess and investigate company directorial conduct in case of wrongful trading.

I Can’t Afford the Cost of the Liquidation.

Fearing the cost of Liquidation often delays the company director’s decision to proceed with Liquidation, causing further problems for company directors through trading insolvent.

So, if you’re worried? Don’t hesitate to contact John Waller at HBG Advisory on 0800 612 5548, who will explain ways forward and avoid further regulatory issues. 

For further reference:

  • If you hold back due to costs, a creditor may start winding up compulsorily Liquidation for your company. Therefore, company directors lose control over the process and result, as creditors will appoint their preferred licensed insolvency practitioner.
  • Payment of Liquidator fees remains due to the sale of company assets. The appointed Liquidator, however, is a preferential creditor and is legally entitled to take their fees from the realisation of company assets.

How do I liquidate my limited company? – Meaning of Liquidation (Insolvency)

Liquidation in the UK, referring to the close of a limited company, involves:

  • Bringing a business to a closure;
  • Distributing the company assets to claimants;
  • A process used generally for a company deemed insolvent. That is unable to pay its creditors as and when they fall due;
  • If Insolvent, referred to as a Voluntary Liquidation or Creditors Voluntary Liquidation CVL.

Liquidating an Insolvent UK Company

The stages of a Creditor’s Voluntary Liquidation – Insolvent Liquidation

When taking liquidation advice, maintain objectivity, ensuring you understand the priority of the company’s creditors over shareholders.

So, two ways exist to liquidate an Insolvent Company. However, Creditor’s Voluntary Liquidation remains the most common way.

Once you choose to liquidate. If the company is insolvent, then to commence placing an insolvent company into Creditors’ Voluntary Liquidation, you must instruct a Licensed Insolvency Practitioner to carry out the liquidation process once the board has agreed to liquidate and passed a resolution to liquidate your limited company. The Insolvency Practitioner will then start the process of Liquidation for the company. Therefore,

1: A Directors’ meeting

Directors call a meeting to agree that the company is insolvent and requires Liquidation. They also decide who will act as “Liquidators.”

2: A shareholders’ meeting

A shareholder meeting then passes a special resolution to liquidate the company. A 75% majority is required. When calling a meeting, a minimum of 14 days’ notice must be allowed in writing to the shareholders. However, if 90% agree, meetings are immediately arranged.

A Centrebind procedure remains available, along with “liquidation” by written resolution.

3: A creditors’ consultation

No Meeting of Creditors, however, occurs at the start of the Liquidation. Two options exist, though:

A “notice of deemed consent” to creditors

At least seven days notice is required. “Deemed consent” means creditors cannot attend remotely or by telephone. When 10% or more Creditors (by number or value) want a physical meeting, they request one, creating an additional seven-day delay.

Additionally, notice may be emailed to creditors of the chosen process above.

Costs and Fees to Liquidate a Company?

Voluntary liquidating your limited company remains an efficient way to close an insolvent business. However, costs may dissuade company directors from the process, compounding the business’s financial problems.
The initial cost for the process ranges from £3000 to £5000 plus Value Added Tax to collate and prepare the initial paperwork.

Virtual meeting of creditors

Allowing virtual attendance (say by video conference or by telephone). One must attend the Liquidator’s offices to answer creditors’ questions at the meeting. Upon conclusion, they then sign the paperwork the “Liquidator” needs. However, “Creditors” are not allowed to attend even if they want to physically!

Report and statement of affairs

A report is required and sent to all creditors before the virtual meeting/deemed consent: this details the company’s trading history, a statement of affairs, and statutory information. The “Statement of Affairs” must be physically posted, preferably by recorded mail. The Liquidator may email everything else or make it available online for the creditors to view, assuming they have an email.

What is the director’s duty of care when liquidating a company?

  • Ensure you and your team understand the company’s position, maintain contact and respond in a timely fashion to the Insolvency Practitioner;
  • Maintain safety and completion of all accounting information prepared and ready for handover to the to-be-appointed Liquidator;
  • When having meetings, take minutes of decisions, ensuring the position of the company or creditors is not additionally worsened by your actions;
  • Ensure you have professional insolvency advice. Take notes of all meetings and ensure the information given remains maintained;
  • Advise secured creditors;
  • Cease using the company bank account;
  • Do be genuine, however, with all your staff and contacts;
  • Assist with redundancy claims, ensuring records are up to date;
  • Understand the liabilities of the company, along with current assets. Ensure assets are insured and protected;
  • Deal with ongoing critical issues and, therefore, brought to the attention of the Insolvency Practitioner on day one;
  • Payment to any outstanding creditor remains, however, a preference. Therefore, do not do;
  • Deal with Legal proceedings against you as an individual;
  • Promises to creditors – Therefore, do not enter into additional credit agreements, purchase on credit from suppliers, increasing debt;
  • Take no further deposits;
  • Cancel any HMRC time-to-pay agreements.

How Long Will My Company Be In Liquidation?

Liquidations usually take a minimum of a year, but the period may be longer when the company has substantial assets, including property.

However, appointing a liquidator (licensed insolvency practitioner) takes one to two weeks. Furthermore, approving the Liquidation requires three months. Additionally, it can take longer to determine the company’s financial position, agree on a value, and dispose of assets so that the Liquidator can, above all, and most importantly, distribute the proceeds to creditors.

How do I Commence Liquidation Ltd Company – Disadvantages of Liquidating my Company

Liquidation has some disadvantages. One must be informed of both its advantages and disadvantages to determine whether it’s the correct option.

  • Overdrawn director’s loans pursued;
  • Dividends paid when insufficient profits will require repayment;
  • Liquidation cannot be stopped;
  • Job losses;
  • Legal restrictions exist with creditors’ voluntary Liquidation, stopping former company directors from wanting to trade with a similar name. Use of the name or similar one requires clear legal advice beforehand if attempting the reuse;
  • Directors who misbehaved, possibly subject to disqualification;
  • Creditors will call in personal guarantees by directors;
  • Investigation of how former company directors operated the business;
  • New companies will find difficulty raising credit.

Compulsory Liquidation

Unlike voluntary liquidations, such as CVLs or MVLs, Compulsory Liquidations are court-appointed. Usually, a creditor issues a petition to bring a company to court. The courts appoint the official receiver to wind the company up if approved.

Liquidating a Solvent UK Company

Members’ Voluntary Liquidation Process?- Solvent liquidation.

  • Arrange a board of directors’ meeting;
  • Then, prepare a declaration of solvency;
  • Shareholders Meeting to agree on company solvency and closure;
  • The company then placed in Liquidation with a Licensed Insolvency Practitioner;
  • Prepare a deed of indemnity (regarding repaying creditors);
  • Final meeting and then wrap up.

Benefits Of An MVL

  • The potential tax benefit for company shareholders through the allocation of capital;
  • The appointed Liquidator then undertakes responsibility, administers all assets and arbitrates
    Creditor claims;
  • Liquidation crystallises company liabilities;
  • Creditors who fail to claim may not displace distributions paid out by the Liquidator.

If you need further assistance with How Do I Liquidate My Company, please contact HBG Advisory at 0330 056 3120.

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