Commencing  The Process Of Liquidation

Commencing the process of liquidation requires the appointment of a Licensed Insolvency Practitioner (IP).

Is your company commencing a “Liquidation”? If so, then this is what follows.

A company potentially requiring liquidation will have company directors concerned about the process and how it impacts them.

Two types of formal Insolvency liquidation exist.

They are:

Both procedures involve selling the companies’ assets, and eventually, once agreed upon, the order of preference is legally sorted. The creditors will be paid subject to available funds for distribution.

The liquidation process begins once the shareholders pass a resolution to wind up the company. An IP acts as the Liquidator, winding up the company’s affairs and distributing its assets to creditors. The company remains under the directors’ control until that time.

The type and reasoning behind the need to appoint a Liquidator formally then depict the process ahead: 

  • Both processes remain managed by an appointed IP or an official receiver. 
  • Both insolvency appointments then require the realisation of the company’s 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 stem from a disgruntled creditor. 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, the Liquidator arranges the distribution of the collected monies in order of legal preference to the company’s creditors. 

So, company creditors may then consider and take action against the petitioning of winding your company up utilising a compulsory liquidation if your company’s 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;
  • HMRC;
  • and so on.

Directors ask for shareholder approval instead of going through the courts to consider action against their insolvent company. 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.

Once commenced, 

  • 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 voluntary liquidation process is less stressful as the procedure remains less disruptive even though closure happens. Company directors are required to have little involvement during a Voluntary Liquidation. The appointed Liquidator and their team conduct most of the tasks.

Please note that once you have had your first meeting with an IP, you and they may consider a different solution. Liquidations are the end of a company’s life for good. However, options to continue to trade may offer a better outcome for all. One is the company’s 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 company’s assets and trade in a newco after paying an acceptable sum for the assets. 

Why consider liquidation voluntarily?

Companies with so much debt that they can’t restructure are not considered viable. We need to consider a voluntary liquidation of the company.

Knowing that the company remains insolvent, company directors need to react fast and ensure the overall trading position does not deteriorate, worsening the situation of the company’s creditors. This indicates that you should ask an IP for guidance in securing creditors. An IP will explore the financial difficulties your company may be experiencing and suggest a way forward. 

Postponing taking action may allow company debt to grow. Doing this exposes company directors to criticism and being personally liable for the company’s debts.

However, limited company directors remain protected from the company’s debts, subject to no previous wrongdoings in how they operated and financially managed the company. If found guilty, they may remain liable for the company’s debt.

This is potentially a reality if you remain trading while insolvent knowingly and fail to protect the company’s creditors and to fulfil your duties as company directors. 

Upon realising your company is potentially insolvent, obtaining guidance from an IP shows your engagement to protect the companies and creditors over you or your company. 

Engaging an IP to handle the process indicates your intent to protect the creditor while avoiding issues that could worsen the situation.

Company Director “Redundancy”.

The insolvency process for many company directors remains difficult. 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, but it also observes your business’s failure and closure while directly impacting your primary income. However, there may be an unexpected silver lining during this challenging time.

Directors of an insolvent limited company and employees can submit a claim for redundancy. Company directors, though, differ in that their claim remains dependent on their:

  • Length of continuous service with the former failed company;
  • your age;
  • Did the salary they receive go through the company’s PAYE scheme (Including dividends paid)? 

Often, the claim company directors pay for the liquidation if successful. 

For further explanation of 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 0330 056 3120  or book a VIRTUAL meeting online to expand further on options available to you as a company director. 

Employees and redundancy when in liquidation
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