There are various types of Business Liquidation:
Voluntary and Compulsory Liquidation. These types of Liquidation depend on your situation.
A Creditors’ Voluntary Liquidation
This can be used by Insolvent Companies and is initiated by a Shareholders’ resolution. This involves the dissolution of the Insolvent Company and the redistribution of any assets to the Creditors. This procedure enables Directors to write off unsecured business debts that are not personally guaranteed. See our services for Sequestration for debts that are personally guaranteed. Directors may see Insolvent Liquidation as an exit from financial difficulty whilst still addressing all of the Creditors in an appropriate manner.
A Members’ Voluntary Liquidation
This is the appropriate way to Liquidate a Solvent Company and can be used as part of an exit strategy. A Solvent Liquidation may be considered if you have a Company that you want to close as part of your business plan and to reduce taxation. Your Company may have outlived its purpose and be heading towards a natural end of trading, or you may wish to extract the value of cash and assets from the Company in a tax efficient manner. The Directors must sign a declaration stating that there are no remaining Creditors. One example of a Creditor could be tax arrears on VAT or PAYE, so this needs to be considered before going into Liquidation. The insolvency practitioners will realise business assets at fair value, before dissolving it.
Compulsory Liquidation
This type of Liquidation is usually initiated by a Creditor that is looking to force a business that cannot pay its debts into closure via a Court ordered application due to non-payment of debt. This procedure is often used to wind up your business as a last resort by Creditors after failed negotiations over missed payments. The compulsory process is usually instigated with a winding up petition. Once it is heard at Court, it can become a winding up order. This insolvency procedure is usually handled by an appointed Liquidator. Therefore, this is not a voluntary process for Directors. Failure to cooperate with the appointed Liquidator can have serious repercussions.
Here is some more information
If you are a Company Director who wishes to shut down your business (also called winding up), or is being forced into that situation by Creditors, then you’ll need to understand your options.
The process in which a company voluntarily proceeds to declare itself insolvent or where a Creditor of the Company brings an application to court to have the company declared insolvent.
An appointed Liquidator has several duties. After their appointment, these experienced professionals have the responsibility to act as an impartial third-party to oversee the process from beginning to end.
In a Liquidation process Creditors receive proceeds in line with how they are ranked. There are 3 distinct types of Creditors.
1 Secured Creditors. 2 Preferential Creditors. 3 Concurrent Creditors.
The principle effects of all Liquidations are that (a) the Company stops trading (b) the powers of the Directors cease However, other effects will depend on what type of Liquidation has taken place.
There is a basic cost for compliant companies. The following factors must also be considered before Liquidation can occur successfully. Costs will vary based on these factors.