Commencing The Process Of Liquidation
Commencing the process of liquidation requires the appointment of a Licensed Insolvency Practitioner.
Is your company commencing a “Liquidation”? If so, then this is what follows.
A company potentially requiring a liquidation, will have directors who will have concerns as too the process and how it impacts on them?
Two types of formal Insolvency liquidation exist.
- A Voluntarily process utilising a Creditors’ Voluntary Liquidation (CVL);
- or an involuntary process, via a compulsory liquidation.
Both procedures involve the assets of the companies being sold and eventually once agreed and order of preference legally sorted. The creditors will be paid subject to available funds for distribution.
The type and reasoning behind the need to appoint a Liquidator formally then depicts the process ahead:
- Both processes remain then, managed by an appointed insolvency practitioner or an official receiver.
- Both insolvency appointments then require the realisation of the companies assets, as a whole, to realise cash and the complete closure and dissolution at companies house of the company. However, the result remains the same, whether in a “voluntary” or “compulsory liquidation“.
Commencing The Process Of Liquidation as a “Compulsory Liquidation”?
Influences prompting a compulsory liquidation directed at your company usually, therefore, stems from a discontented creditor of your company. The aim is to secure and recover the money they believe is owed and unpaid. That is because as part of the liquidation process, having sold all the company’s assets, then the Liquidator arranges distribution of the collected monies, in order of legal preference to the companies creditors.
So, company creditors may then consider and action the petitioning of winding your company up utilising a compulsory liquidation, if your companies unencumbered assets justify such action to secure monies to repay them.
TAKE NOTE: Any party with a financial link with a company may issue a winding-up petition. They may include:
- Shareholders of the company;
- trade creditors;
- financial institutions;
- regulatory authorities;
- and so on.
For company directors to consider action against their insolvent company, instead of, therefore, going through the courts, they ask for shareholder approval. Consider a voluntary option. A company requires one or more of the points highlighted below to consider the voluntary option—failing which, the far riskier process of a Compulsory Liquidation awaits.
- Company debts exceed assets;
- have no ability to pay company debts as and when they become due;
- HMRC Arrears;
- Not achieved required company members;
- Failure to re-register either as a public or private company properly.
- The Liquidator instructs third party agents to realise the assets of the company;
- any litigation affecting the company typically stops;
- Any running post-appointment action by creditors remains void.
Commencing The Process Of Liquidation as a “Voluntary liquidation”?
The process of voluntary liquidation is less stressful as the procedure remains less disruptive even though closure happens. Directors are required to have little involvement in the course of a Voluntary Liquidation. In the main, most is conducted by the appointed Liquidator and their team.
Note, though please once you have had your first meeting with an IP. You and they may consider a different solution. Liquidations are the end of the life of a company for good. However, options to continue to trade may offer a better outcome for all. One being the companies continuation. Potentially with the protection of an IP appointed as an Administrator or a supervisor.
Therefore, it could require settling with creditors and starting the process of a:
- Company Voluntary Arrangement (CVA). to decrease monthly cash outgoings;
- you are placing the company into pre-pack administration, permitting the former directors to acquire the companies assets to trade in a newco having paid an acceptable sum for the assets.
Why consider liquidation voluntarily?
Companies who have so much debt that can’t restructure and so are not considered viable. Need to consider a voluntary liquidation of the company.
Directors knowing that the company remains insolvent, need to react fast and ensure the overall trading position does not deteriorate worsening the situation of the companies creditors. Indicating you should ask a licensed insolvency practitioner for guidance securing creditors. An IP will explore with you, the difficulties financially your company may be experiencing and a way forward.
Postponing taking action may allow company debt to grow. To do this potentially exposes directors to criticism along with being personally liable for the debts of the company.
However, limited company directors remain protected from the debts of the company subject to no wrongdoings previously in how they operated and financially managed the company. If though they are found guilty, then they may remain personally liable for the companies debt.
Potentially a reality, if you remain trading while insolvent knowingly, therefore fail to protect the companies creditors and to fulfil their duties as directors.
Obtaining guidance from a licensed insolvency practitioner upon realising your company is potentially insolvent, shows your engagement to protect the companies, creditors, over you or your company.
Engaging an insolvency practitioner to handle the process indicates your intent to protect creditor while avoiding issues making the situation worse for all.
Company Director “Redundancy”.
Any Insolvency process for many company directors remains a difficult time. For the director of a company bearing the possibility of liquidation, either by voluntary or forced means, it is unquestionably a stressful time. Not only does this have a substantial shock observing the failing and closure of your business while impacting directly on your primary income. During this challenging time, however, there may be an unexpected silver lining.
Directors of an insolvent limited company along with employees can submit a claim for redundancy. Directors though differ in that their claim remains dependant on their:
- Length of continuous service with the former failed company;
- your age;
- did salary they receive, go through the companies PAYE scheme (Excludes dividends paid)?
Often, the claim directors make if successful pay for the liquidation.
For further explanation on directors redundancy claims
How can HBG Advisory assist with Commencing the Process Of Liquidation?
If you’re facing the threat of compulsory liquidation, or believe voluntary liquidation may be the only option left for your company, please call us on 0800 612 5448 or book a VIRTUAL meeting online to expand further on options available to you as a director.