Liquidation refers to the process of closing a limited company by converting its assets into cash, repaying creditors in order of priority and then dissolving the company from the register at Companies House. Any money left goes to shareholders.
It can be a voluntary process for either a solvent or insolvent company or compulsory, following a court order subsequent to a winding up petition.
At Company Debt, we offer expert guidance and financial advice to help your business, whether insolvent or solvent, through liquidation.
How do I Liquidate my Limited Company?
If you’re a director wishing to liquidate, your first responsibility is to hold a board meeting and pass a resolution to wind up the company.
The IP will take over all creditor communications, deal with staff, suppliers, HMRC, and all other formal aspects of closing the company. Assets will be sold to pay creditors, and any debts not covered will be formally written off with the company’s dissolution.
Your main responsibility as director shifts to supporting the IP with information, as your role in managing the company comes to an end.
If your company has debts
If your company is insolvent, a CVL (creditors voluntary liquidation) is the standard means of voluntarily liquidating.
A CVL involves the dissolution of the insolvent company and the redistribution of any available assets to creditors. This procedure enables directors to write off unsecured business debts that are not personally guaranteed.
For a solvent company, a process known as Members Voluntary Liquidation offers the most tax-effective option for closure when there are assets of £25k or more.
MVL’s allow you to pay less capital gains tax (at 10% on all qualifying assets)
For companies with less than £25k in retained assets, it may be cheaper for you to sell any assets yourself and strike the company off the register at Companies House. You should ask your accountant or another professional advisor for advice about this.
What is the Process for Liquidating a Limited Company?
The basic process of liquidation involves the IP selling the company’s assets in a fair and organised manner to pay creditors as much as possible.
As part of their remit, the liquidator will also investigate the conduct of the directors in the period preceding insolvency to see if any actions led to reduced returns for creditors.
When all claims are settled, the liquidator distributes any remaining funds to shareholders and ensures the company is formally dissolved and struck off the company’s register.
Does Liquidation Write off Company Debt?
Typically, any company debts that the liquidator cannot repay are written off in most cases, with exceptions for debts covered by personal guarantees and liabilities arising from wrongful or fraudulent trading.
What are Employee Rights During Company Liquidation?
During a company liquidation, employees have certain priority rights and protections. Their unpaid wages, salaries, commissions, and other compensation are given priority over most other unsecured claims, up to a statutory limit. Additionally, unpaid contributions to pension and benefit plans must be addressed.
The complete liquidation process can take around one year on average but longer when a larger company is involved.
What Happens After I Have Wound Up my Limited Company?
After your company has been liquidated, here’s what happens next for you:
The company’s debts cease, and you shouldn’t face personal repercussions provided there was no wrongful or fraudulent trading or personal guarantees.
You’re now in a position to start anew. This could mean setting up a new business or taking up employment, depending on your personal circumstances.
Even after the company is dissolved, you may still need to fulfil some reporting or compliance requirements after it is liquidated.
Risks of Company Liquidation
Liquidating a company comes with several downsides that can have lasting impacts:
Asset Devaluation – In a forced liquidation, assets often have to be sold quickly, resulting in lower sale prices than what the assets are truly worth
Directors’ Liability – If directors have personally guaranteed any of the company’s debts, those could fall on them to pay back once the company is liquidated.
Lower Recoveries -There’s a chance, not everyone the company owes money to will be paid back in full. After paying secured creditors, liquidation costs, and priority claims, unsecured creditors often recover just a fraction of their claims.
Job Losses – Liquidation means your employees will be out of work.
If you’re unsure about any of these steps or need more guidance, we at Company Debt are here to help. Contact us via live chat, telephone, or email for expert advice and support through this process.
FAQs on Liquidating a Business
What happens to the company’s debts during liquidation?
The company’s debts are paid off using the realised assets during the liquidation process. What cannot be paid ends with the dissolution of the company.
What happens to the shareholders of a company during liquidation?
During the liquidation process, any remaining assets are distributed among the shareholders in accordance with the company’s articles of association. However, it is unlikely that shareholders will receive any returns in the case of liquidation.
Can directors be held personally responsible for the company’s debts during liquidation?
Yes, directors can be held personally liable for the company’s debts in certain circumstances, such as if the was traded while insolvent or if the directors have acted fraudulently or recklessly.
Is it possible to avoid liquidation?
Yes, it is possible to avoid liquidation by restructuring the company’s operations, seeking alternative solutions such as a company voluntary arrangement or administration, or finding a buyer for the company. It is important to seek professional advice to achieve the best outcome.
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