Voluntary Liquidation and the UK liquidation process

Types of Liquidation in the UK:

voluntary liquidation There are several versions of liquidation that may be relevant depending on your situation. The first type of liquidation is called a creditors' voluntary liquidation which is a liquidation for an insolvent company. An insolvent liquidation can sometimes be mistakenly referred to as company bankruptcy. If your company has debts that it cannot pay-off, this type of liquidation may be appropriate.

The second type of liquidation is called a members' voluntary liquidation which is a liquidation for a solvent company. This type of liquidation is used for companies that do not have any business debts and the directors or shareholders may wish to extract cash or assets at a possible 10% tax rate.

The third and final type of liquidation is a compulsory liquidation which can also be referred to as 'winding up', or forced liquidation. A compulsory liquidation, as the name may suggest, is usually outside of the directors or shareholders control. This type of liquidation is usually used as a last resort in an attempt by the creditors' to get a return from any potential cash or assets within the limited company.

Creditors' Voluntary or Insolvent Liquidation

A creditors' voluntary liquidation is usually a solution used by directors that have found themselves with their backs up against a wall and unable to pay the bills on time. The people that your company owes money to are called creditors and may be demanding payments that the company simply cannot afford to pay.

Liquidation, although a last resort, can be considered as the rational option at this stage in order to cut any losses and move on. Stress can play a big role in the lead up to a creditors' voluntary liquidation as the directors don't plan for a business to struggle. However, when times get tough this type of liquidation can provide great relief from the stress that is often experienced when running a struggling company.

If your company is struggling to pay bills on time and you don't feel that the business is viable any more, a creditors' voluntary liquidation could be the answer.

A creditors' voluntary liquidation allows you to write off any unsecured company debts that are not personally guaranteed and for this reason, directors can see this option as a welcome safe exit from a stressful situation, given the amount of pressure they are often under. So if your company has debts that it cannot afford to pay and you wish to close down and move on without the stress of company debt hanging over your head, a creditors' voluntary liquidation could be just what you are looking for.

Members' Voluntary or Solvent Liquidation

A members' voluntary liquidation is usually used as a means of liquidating a limited company that does not have any debts, hence the solvent reference. This liquidation allows directors and shareholders to extract cash or assets in a tax efficient way, through the use of the entrepreneurial tax relief. This is at a lower rate of tax than if you were to try and extract the cash or assets another way.

This type of liquidation could be ideal if you are planning to retire or you have no further use for the company and you wish to extract the valuables and transfer them over to your personal finances. So if you have a limited company that is cash or asset rich and you want to liquidate, a members voluntary liquidation may be the ideal solution for your situation.

Compulsory or Forced Liquidation

A compulsory liquidation is not really a solution for anyone other than someone who wishes to force another limited company into liquidation. This type of liquidation is usually used by a disgruntled creditor wanting to liquidate a company's assets or extract cash to repay a debt that is overdue.

Compulsory liquidation is not a situation that should be taken lightly as it is normally a last resort after failed negotiations.

This type of liquidation is also referred to as 'winding up' and is usually initiated through the successful implementation of a winding up petition. The official receiver will then be appointed and usually oversees and investigates the liquidation process. The official receiver has a number of roles, but the key role within a liquidation would be to get the best return for the creditors and to investigate the directors to see if there has been any irresponsible trading which may have contributed to the company being forced into liquidation.

If your company has been threatened with a winding up petition please do not ignore it as it is a very serious threat with the intention of forcing your company into liquidation. So if you wish to exit your situation safely and you are worried about what to do if you have received a winding up petition, please feel free to speak with one of the team immediately and see how we can help you come out of this situation as quickly and safely as possible. Written By Mike Smith
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