What Type of Liquidation Should I use for My Limited Company?

Whatever the reason for the closure, the type of liquidation that your limited company needs will depend largely on whether or not your company is solvent or insolvent.

Your company is solvent if it can pay all its debts within 12 months, and the company assets exceed the liabilities. In this case, a Members Voluntary Liquidation (MVL) is likely to be appropriate.

Creditors Voluntary Liquidations (CVL) are used in the case of insolvent companies, who must stop trading immediately to avoid wrongful trading.

Statutory procedures must be followed for both of these liquidation procedures, which need to be administered by a licensed insolvency practitioner (IP).

Below, we will explore in more detail the criteria for the different processes.

What type of liquidation should I use for my limited company?

Member’s Voluntary Liquidations – for solvent companies

Is the company solvent?

It is crucial to establish that the company is solvent prior to looking into an MVL; if it is found to be insolvent later down the line, company directors could soon find themselves personally liable for the company’s debts.

A declaration of solvency would first be prepared between the IP and the company director.

This would include a full statement of the company’s liabilities and assets, showing that the company can pay any debts within a maximum of a 12-month period from the date that the MVL commences.

Any contingent liabilities must also be included, which may become due in the future; the court may need to have an input on the decision of what to include.

Winding-up resolution

A resolution will be passed to wind up the company, with the permission of all company members.

Within 14 days, the intention would be published in the Gazette online; this is a statutory requirement required for all closure procedures. It is required to allow creditors to submit their claims against the company.

Appointment

Once it has been officially confirmed that the process is going ahead, the IP is appointed, and they take over the control of the company.

They would realise all assets and distribute the proceeds among all shareholders.

Around a period of 3 months is taken from the start of the MVL process for shareholders to receive around 75% of their claims, with anything remaining taking a few months longer (due to HMRC and bank processing times).

Creditors Voluntary Liquidations – for insolvent companies

Is the company eligible?

If you frequently find that company bills are left unpaid, and you don’t foresee trading into a profitable position, it is likely that a CVL will be appropriate for your company. Advantages include;

• Redundancies are payable to staff members and directors that are eligible
• Your reputation as a director can be retained because creditor interests are put first
• The company is immediately protected from action being taken
• Your conduct as a director is not likely to be investigated (in comparison to a winding up petition from HMRC, our Practitioners carry out a much less intrusive process)

Informing creditors

First, creditors must be notified of the intention via the London Gazette, and either a date for a creditors meeting or deemed consent is set, depending on the insolvency practitioner (IP).

This document indicates how the company became insolvent with supporting figures.

NOTE – New legislation – Deemed consent

Creditors’ consent of the liquidation can now be assumed after being notified that they have a certain period of time in which to object to the process. It is likely that in the near future, all practitioners will use this route in order to save on time costs.

In either case, a full statement of affairs must be made available to the creditors, either at the creditors meeting or at least 1 working day before the date of deemed consent.

Realisation

Lastly, any company assets will be liquidated (sold and thus converted to liquid cash). In turn, the proceeds will be used to pay the liquidator and any company liabilities.

On average, the whole process takes around 6 months, although after the initial period of collating information, you will largely be able to leave the process to be handled by the liquidators.

Directors do need to be available over the phone for around half an hour on the date of the creditors meeting, but from then until the final processing stages, you can be left to get on with new ventures.

Get a free liquidation consultation

I hope this article has cleared up which type of liquidation you need for your limited company. However, if you need to liquidate your limited company and you are looking for guidance on which way to turn, we can help. Call Forbes Burton for free now on 0800 975 0380 or email [email protected]

You can also get a free, no-obligation quote to liquidate your company