Business Liquidation

“not necessarily the last option”

There are two types of company liquidation – Voluntary and Compulsory. Compulsory is where the company is wound up by court action and should be avoided where possible. It would usually be a creditor of the business who has filed a winding up order to court. The court has to decide whether to grant the winding up order.

Voluntary liquidation, as the name suggests, is voluntary. Whilst most voluntary liquidations are when the company cannot pay its creditors a voluntary liquidation can also be made for the owners of the business to realise the assets over a period of time, with no shortfall to any creditors .e.g retirement circumstances, please also see MVL (members voluntary liquidation).

When the directors feel that they cannot meet their obligations to creditors then is where you call in the liquidators. Once a liquidator has been appointed the liquidators role is to obtain the best returns for the creditors. The liquidator, operating on behalf of the creditors, is in full control of the company. The directors have at this point no further interest in the company, but obviously may be called upon to assist the liquidator. The first major event to happen is a creditors meeting where the liquidator will provide an overview of the companies finances and the options available. One of their first assessments is often to see if they can sell the business as a going concern. Members of the previous company can make representations to purchase the assets of the liquidated business. Sometimes this may be the only offer on the table.

“liquidation may not be the end of your business in certain circumstances you may be able to buy back the assets needed to start again”

Directors do have legal responsibilities for the running of a company and the liquidator must look at the directors affairs in the business. In the normal running of a business there is not a problem here but if for example the directors had, as examples, deliberately misled creditors, taken out funds unaccountably, failed to keep statutory records and filings, then the liquidator may pass details to the government Insolvency Service where further action against the director(s) may be taken.

Liquidation is not the only procedure available. A CVA (company voluntary agreement) is where agreement can be made with creditors to allow trading to continue.

“don’t hastily call in the liquidator”

If you think you need the liquidation route then don’t just ask your accountants to call in the liquidator. Get advice first, and fast.

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