There are very specific rules under UK law about the process of liquidating a limited company.
Directors will either choose this process voluntarily, or find their company forced into liquidation via a court order.
Company liquidation is appropriate for both solvent and insolvent companies.
In all cases you’ll need the help of a licensed insolvency practitioner such as ourselves. This is a legal requirement in order to ensure fair play for creditors.
Read on to explore a complete guide to the process.
Company Liquidation: Definition
Company liquidation, also known as ‘winding up a company’ is the process of closing a limited company via the realisation of its assets.
Company liquidation can be precipitated by insolvency, in which case the liquidation process involves the sale of assets for the benefit of creditors. Or it can be the choice of a solvent company with assets seeking a tax efficient means of closing the business.
In all cases liquidation must be carried out by a licensed insolvency practitioner: directors cannot liquidate a company themselves.
Below you’ll read about the three main types:
If a company doesn’t pay its debts, creditors can use a process known as a winding up petiion to force it into liquidation. The petition, a type of final demand letter that places the situation before a judge, is then ruled upon in High Court and is the key precusor to the compulsory liquidation process. If the judge finds that the debtor company cannot pay a winding up order is made that instantly puts the company into compulsory liquidation.
Creditors Voluntary Liquidation
This is the correct method of liquidation for an insolvent company that choose to voluntarily start the process before creditors can make it compulsory. It has the advantage of allowing the directors more control over the process, as well as choosing a firm of insolvency practitioners they feel is empathetic to their situation.
CVL’s must be conducted via a licensed insolvency practitioner.
Members Voluntary Liquidation
For a solvent company with no assets and no debt, the member’s voluntary liquidation process allows an insolvency practitioner to close the company neatly, and in a tax efficient manner.
MVL’s allow the possibility of business asset debt relief (formerly known as ‘entrepreneurs relief’) which allows a 10% Capital Gains tax on qualifying assets.
Company Liquidation Process
The company liquidation procedure typically begins with the appointment of a licenced insolvency practioner. The IP will compile a statement of affairs document, communicate with creditors, sell assets at fair value and distribute the proceeds to creditors. At the end of the process the company is struck off the register at Companies House and ceases to exist.
The typical costs of a company liquidation for smalle businesses are between £4000 and £7000 + VAT.
If the company has no money itself, the costs can usually be found from the sale of corporate assets.