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Liquidation Of A Limited Company

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Written by;

John Waller.

Director

Reviewed on: October 10th, 2021.

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Liquidation Of A Limited Company

Considering a liquidation of A limited company in England and Wales?

Requiring to close your limited company in the UK requires a UK Licensed Insolvency Practitioner (meet the team at HBG Advisory). The process is often referred to as a ‘Winding-UP’, is part of the Insolvency family, closes the limited company with debts, and faces creditor pressure then for good. 

Please remember, a limited company is a separate legal entity.

For further reading, please view ‘Commencing the process of liquidation.’

Liquidation procedure entails:

  • Closing your business officially;
  • Realising company assets; 
  • Make staff and directors redundant;
  • Then striking the company off from the register at Companies House. 

To commence, firstly, you need to determine if the company is solvent? Depending on that, determines the type of liquidation required. So if:

Please read How do I liquidate my company for further details.

Can an insolvent company liquidate?

Can an insolvent company liquidate ? Yes

How can an insolvent company liquidate?

Liquidation of an insolvent limited company.

Firstly:

Apply to the court to either close or ‘wind up’ the company, which owes you money once all other means have failed. This will result in compulsory liquidation of the company owing you money. However, applying for a winding-up order acts as powerful leverage to prompt your debtor to pay you.

Therefore, to commence to wind up a company, you therefore need to:

  • Be owed £750 or more and
  • Prove the company cannot pay you.

Once the company enters a Compulsory Liquidation:

  • Your debtor’s company assets are then sold;
  • Any legal disputes are concluded;
  • The company collects money owed by its debtor and any other source;
  • Then priority distributes funds to the liquidated company creditors.

For further help, please read compulsory liquidation and winding-up petition,

And dealing with a winding-up petition.

Can Directors or Shareholders Liquidate the Company?

No.

Notwithstanding, if your company is solvent or not, limited companies require a licensed Insolvency Practitioner appointed as liquidator.

Business Insolvency in the UK is complicated, even a simple liquidation. The liquidator is responsible for distributing the monies of assets liquidated to distribute them to the company’s creditors in order of legal preference. 

Indeed, a company with no assets and insignificant debt therefore requires the liquidator to judge and investigate the former director’s conduct and management of the company’s finances before their appointment, ensuring no evidence of wrongful trading.

Please note: Directors are legally required to use an IP when a company is insolvent. It is important to note that a limited company is a separate legal entity in law.

Liquidation of an Insolvent Company – How Do I Commence?

Voluntary liquidation process.

  1. Establish whether your company is insolvent? Once established, then considered for voluntarily liquidating an insolvent company, Creditors’ Voluntary Liquidation (CVL).
  2. Call a board meeting to discuss the solvency of the company. If established, the company is insolvent.
  3. Then secure a licensed Insolvency Practitioner (Government Licensed) to assist in advising board.
  4. Prepare a statement of affairs for the company detailing the financial insolvency.
  5. Arrange a shareholders meeting to approve the liquidation of the company.
  6. Hold a creditors meeting to advise them of the situation on the statement of affairs.
  7. Subject to the creditors’ approval, the company enters formal insolvency, and the Insolvency Practitioners begin to formally liquidate the company.
  8. The registered office transfers to the Liquidator’s office address.

For further detailed reading, please read ‘Creditors Voluntary Liquidation‘.

Liquidation Of An Insolvent Limited Company – I can’t afford the cost and fees of a liquidation?

  • Company Directors often quote I can’t afford to liquidate my company. That, though, should not be the case. The liquidation cost of creditors voluntary liquidation is often paid out of the proceeds of assets belonging to the company. Therefore, assuming the company has assets, in addition to its company debt, you can use a firm of insolvency practitioners. The appointed Liquidator fees remain a preferential creditor. Therefore, the liquidator draws their fees from the assets of the company once realised.
  • Directors who hold back commencing a liquidation process due to affordability than run the risk of a creditor like the HMRC (If your company has HMRC arrears?) presenting a winding-up petition entering a Compulsory Liquidation. Directors then have lost their position, and creditors may then choose who may liquidate the company.

Winding up a limited company with no assets or debts?

Companies with no liabilities (owes no money) nor assets may strike-off the company. Read more about company strike off.

Shielding yourself as a Director

Directors considering the option: liquidate your limited company should be aware that the liquidator must examine the directors’ behaviour in the period preceding insolvency. 

The Insolvency Practitioner (Meet the Team) will be looking for evidence of any director misconduct, principally wrongful trading. Proof may lead to a director facing a disqualification order, along with a possible ban stopping you from acting as an officer of any company for up to fifteen years.

Consulting with a qualified insolvency practitioner early is the safest way to understand your situation and protect your interests. Choosing voluntary liquidation within your timeframe is preferable to being forced into compulsory liquidation via a Winding Up Order.

Company directors should be aware about:

Liquidation Of A Limited Company – How much does it cost to liquidate a company?

First we need to consider a few things before quoting a price.  Free is never free. Directors need extreme care for practitioners who chase later on directors loans.

The actual cost for any liquidation needs to consider complex issues, its size, and whether it has more than one site location.

Directors of smaller companies should expect costs of £3500 plus VAT and professional disbursements.

Medium to larger limited companies with fixed assets that require realising mean costs due to time will be higher. Directors should note that individual situations allow liquidation funding through a claim in redundancy for those directors who qualify.

Are Employees Paid? If so, how? If Company in Liquidation?

If employees are on the payroll, employees and including directors qualify for certain statutory redundancy payments when a company becomes insolvent.

Former employees of the liquidated company are entitled to statutory entitlements regarding redundancy claims. They may claim:

  • Outstanding salaries and wages; 
  • Unpaid holiday pay;
  • Statutory notice pay/redundancy pay;
  • Staff redundancies; 
  • Unpaid pension contributions and 
  • Directors redundancy pay;
  • Maternity pay.

Employees may be eligible for unemployment benefits once made redundant in a liquidation? For further help claim director redundancy, read redundancy claim.

How long does liquidating my company take?

The process of a standard liquidation usually takes one year. However, depending on issues arising, they may extend, especially if relying on land or property sale.

As soon as you appoint a liquidator, the process doesn’t take long. It may be as quick as seven working days. Once the insolvency practitioner is the liquidator. The liquidation will take approximately three months to the action process. However, usually this will extend, as the primary aim of liquidating assets can be protracted. The liquidators then must ensure the best return for the creditors of the company liquidated.  

Coronavirus COVID19 pandemic and liquidations

For support and advice on:

  • Raising funds to avoid liquidation; pre-pack administration;
  • Directors claim redundancy;
  • Proposing a pre-pack administration;
  • What will be my personal liability in liquidation if any;
  • Arranging a time to pay arrangements with creditors and HMRC;
  • Closing my company with a company dissolution;
  • Concerns over directors disqualification;
  • Business advice for my company and me;
  • Business rescue options available;
  • Personal guarantees and my exposure as a director.

Consequences for Directors of a Liquidation for an Insolvent Company?

A Liquidation means the company ceases trading, employees are made redundant, and directors’ powers cease. The appointed Liquidator deals with creditors and then strikes the company from the register at Companies House.

Normally, the former directors can then set up a new limited company, provided they are not subject to a directorial ban.

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