A Company In Liquidation
A Company in liquidation implies either failure or a decision to close voluntarily.
What does it imply when a company enters Liquidation?
A limited company that is in the insolvency process of Liquidation has entered to terminate the company as a whole. It can either be because the company is, therefore, unable to meet its debt, or the companies liabilities exceed the companies assets. However, it may merely wish to cease then and take advantages of a solvent closure.
Currently, three types of Liquidation exist in the UK:
- Creditors Voluntary Liquidation
- Compulsory Liquidation
- Members Voluntary Liquidation
What is A Creditor?
A creditor or lender is a separate entity that has either sold too, carried out a service or lent monies too. Therefore they are the party owed money to by the recipient.
The provider has carried out an act so as the recipient now has a liability to pay them.
EXAMPLE. Company A supplies Company B with GOODS. Company B now owes money. Therefore the creditor in this example id company A!
Creditors Voluntary Liquidation?
Creditors voluntary liquidation (CVL). – Remains the most popular type of Liquidation in the UK.
For directors to request a liquidation. Company shareholders need to then agree to the process. Limited companies wishing to enter into insolvent liquidation, however, require:
- A severe negative cash flow and therefore unable to pay it’s creditors as and when they fall due;
- or the company balance sheet shows company liabilities seriously then exceed the assets of the company.
- 1 – Call Board of Directors’ Meeting;
- 2 – Arrange the Shareholders Meeting;
- 3 – Then confirm Creditors‘ Meeting;
Then, the appointed executive company directors to approach a Licensed Insolvency Practitioner to convene a formal meeting of the companies creditors within 14 days.
Recent changes now allow the meeting to be held via a virtual online platform. Then the IP presents a statement of affairs of the company produced by the directors detailing the companies financial status.
Creditors then are required to vote for a liquidator to appoint to pay creditors back.
- 4 – A Company in Liquidation;
Upon the liquidator being appointed by the creditors. Then the former directors cease to act. And lose control of the company. However, directors remain responsible for assisting in the process by cooperating with the liquidator.
IMPORTANT: The appointed Liquidator then examines the former conduct of previous directors. At this stage, any previous misfeasance or fraud will then form part of potential recommendations to have the directors disqualified.
Along with the former employees of the company. Directors may if employed through PAYE may qualify for redundancy.
How much then, does the liquidation process cost?
Cost of Liquidation varies depending on the amount of pre-insolvency work required. Fees range from £3000 up to £6000 (Excl VAT).
- Known then as pre-insolvency fees;
- Preparation of all statutory document;
- Advising creditors of meeting;
- Arrangement of statutory meetings.
IMPORTANT: Many advisors quote low fees such as £1500 to land you as a client. As with all things in life. When it is too good to be true, then it is not. Liquidation no matter by whom carrying them out are the same unless using northern practices ( Operational costs lower).
RISKING you as a director, your company and indeed IMPORTANTLY that of the companies creditors is something to, therefore, consider seriously.
Any form of INSOLVENCY in the UK is a HIGHLY REGULATED PROFESSION (Rightly so). It would be best if you had Faith and Trust in those whom you deal with. They need to offer a professional service to all parties.
Implications of a Voluntary Liquidation for directors?
Once you have liquidated a limited company, providing you are not subject to a disqualification order? You may start the same or set up a new business anew. However, stringent rules and conditions apply. You are advised to take legal advice on the best way forward, especially using a similar name, and it’s implications. Discuss this with the appointed liquidator for clearance.
Further, HMRC may request a deposit for VAT liabilities moving forward. If HMRC VAT was a considerable creditor in an Insolvency, you had been associated with previously.
Important note: Ensure your directors’ loan account remains updated by your accountant, along with all the company accounts. Directors who owe money to the company accounting wise remain an asset of the company. So, if your account remains overdrawn? The appointed liquidator will ask for repayment. (Do not accept people telling you otherwise).
A Company in liquidation and the effect on Directors Personal Guarantees
Any Personal guarantees given before the Liquidation will, therefore, remain and asked to repay by the holders. They stay not WRITTEN OFF in the Liquidation. Please note, HMRC rank before floating charge holders for repayment commencing December 2020.
The impact means directors remain exposed financially, personally due to guarantees pledge, along with floating charge holders.
Please contact a member of our rescue team at HBG Advisory for immediate guidance on Creditors Voluntary Liquidations, on 0800 612 5448 for a free chat or book a safe, private VIRTUAL meeting online.
The Team at HBG Advisory.
What Happens To a Company in a Compulsory Liquidation?
The process of a compulsory liquidation commences with a distressed company no longer waiting to collect their monies owed.
The process requires a debt of £750 or more owing and not disputed. Further, the creditor must have proof of their notification has been sent to collect the outstanding debt to the debtor.
- Send a statutory demand first;
- In the event the debtor fails to respond, dispute or pay in the required 21 days ;
- The petitioning creditor may proceed to issue a winding-up petition to the debtor company.
- Then subject to the judge granting the winding-up order?
- Then the official receiver arranges an interview with the director;
- liquidate the assets of the business to repay company creditors;
- However, the process is slower than a voluntary liquidation; Directors consider the process stressful and time-consuming. The official is legally required to examine the previous behaviour of the directors;
- The official receiver has to track down and collect monies owed by the former directors. However, directors themselves then facing insolvency.
A Company In Liquidation, How can I stop the process?
Can I stop the process?
The action of a winding-up petition remains challenging to halt the process.
To prevent the Liquidation requires paying the debt, or the petitioner to agree to withdraw the petition. Requires to apply for an adjournment of the winding-up hearing. Therefore, time to find the funds or even a voluntary company arrangement organised. It would help if you though moved very quickly!
What are the implications for the former directors in compulsory Liquidation?
Besides, once an official receiver is appointed, the Official Receiver remains charged with collecting monies owed to the company by directors in a focussed way. Additionally, the official receiver has a statutory duty to inspect actions by the former directors up to the appointment.
With a Creditors Voluntary Liquidation. The liquidated carries any such investigation at their discretion.
What Does Members Voluntary Liquidation Mean?- (SOLVENT LIQUIDATION).
A Members Voluntary Liquidation (MVL)
A formal solvency process to close a solvent company for good.
As with insolvent liquidations, a licensed insolvency practitioner acts as an appointed liquidator for the company. The IP then realises all of the company’s assets, organise the full payment of creditors while settling any legal disputes in full. Once Tax clearance has been agreed and if owed paid, then distribute all the leftover funds to shareholders/members of the company.
IMPORTANT: For an MVL to succeed. The company is required to pay all of the companies creditors, along with any liabilities contractually. Then, the appointed liquidator upon completion of necessary formalities, including as noted above, HMRC clearance may then proceed to remove the company from the registrar at companies house. The company therefore dissolved.
A Members Voluntary Liquidation needs 75% of the company shareholders that require notification of the intention to have a meeting of members. Necessary to pass the winding-up resolution.
Will I receive payment from a company in Liquidation?
It depends if the company has cash, once assets sold and priority creditors paid. Cash remaining then available to distribute out to unsecured creditor or not?
Former employees often do not receive their last months’ remuneration or if paid weekly, unpaid wages. You though are then entitled to make a claim helped by the liquidator’s team.
You may claim for:
- Arrears of pay owed;
- Outstanding holiday pay;
- Money owed instead of notice.
PLEASE NOTE. Directors paid through the PAYE and have a contract of employment status was an employee.
A creditor of the company
Often in insolvency, if you are an unsecured creditor? Then you remain less likely to receive a dividend payment from the Liquidation.
As a secured creditor, you then may receive more or all monies owed back.