What happens to shareholders in liquidation?
What happens to shareholders in liquidation and what types of liquidation exist?
Three types of liquidation remain available.
If your company is insolvent, then available:
For solvent companies:
Creditors Voluntary Liquidation (CVL) and compulsory liquidation
A Creditor’s Voluntary Liquidation and a compulsory liquidation share the process of liquidating an insolvent limited company. Whereas to an MVL, the company creditors control the liquidation, not shareholders. Therefore, the creditors appoint the liquidator, unlike the shareholders in an MVL.
Compared to an MVL process, shareholders usually have little hope of any dividend payout, generally in an insolvent liquidation. Companies have little if any money to pay the companies creditors. Recent changes to payments to the HMRC reduce even further chances of payment. Therefore, shareholders ranking below unsecured creditors now has little prospect of payment.
Members Voluntary Liquidation (MVL)
A Member’s Voluntary Liquidation, used when closing a solvent company. It brings about the orderly wind up of a limited company where the shareholders and directors agree the company no longer needs to continue trading; therefore, it has no further use.
In an MVL, the appointed liquidator liquidates the company’s assets to enable the distribution to creditors, leaving a surplus payable to the shareholders. Once actioned, the liquidator applies to the companies house to have the company formally dissolved.
In a Member’s Voluntary Liquidation, creditors’ interests are not predominant. Shareholders retain some control over the process. With an MVL, shareholders appoint the liquidator of their choice, unlike with Creditors Voluntary Liquidation.
A Member’s Voluntary Liquidation remains a solvent liquidation. Shareholders assume their shareholding repayment in part or full from the appointed liquidator upon realising the company’s assets. The liquidator is required to pay creditors of the company before any distribution to shareholders.