The IP will take over all creditor communications, deal with staff, suppliers, HMRC, and all other formal aspects of closure.
Assets will be sold to pay creditors, and any debts not covered will be formally written off with the company’s dissolution.
For most directors, the appointment of an IP comes as a relief because it means you can take a back seat while the process unfolds[2]Trusted Source – GOV.UK – Directors’ Responsibilities in Liquidation.
A CVL involves the redistribution of any available assets to creditors, allowing 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)
What is the Process for Liquidating a Limited Company?
The 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 directors’ conduct in the period preceding insolvency to see if any actions reduced creditors’ returns.
When all claims are settled, the liquidator distributes any remaining funds to shareholders and formally dissolves the company.
Does Liquidation Write off Company Debt?
One of the main concerns directors have with an insolvent company is whether they can leave the debt behind.
Typically, any company debts that the liquidator cannot repay are written off, with exceptions for debts covered by personal guarantees and liabilities arising from wrongful or fraudulent trading.
The government’s Redundancy Payments Service is designed to ensure that even if the company has no money, a certain level of compensation will always be covered.
Redundancy: Employees are entitled to statutory redundancy pay if they’ve worked for you for over two years.
Notice pay: Employees should receive notice pay or payment in lieu of notice. The amount depends on their length of service.
Unpaid wages: Staff can claim for unpaid wages, including overtime and commission. This covers up to 8 weeks of arrears.
Holiday pay: Employees can claim for untaken holidays. This is limited to 6 weeks’ worth.
Unpaid pension contributions: These can be claimed for up to 12 months.
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 – You shouldn’t face personal repercussions provided there were no wrongful or fraudulent trading or personal guarantees.
You’re now in a position to start anew. Depending on your personal circumstances, this could mean setting up a new business or taking up employment.
Even after the company is dissolved, you may still need to fulfil some reporting or compliance requirements after it is liquidated.
Are There Risks With Company Liquidation?
Liquidating a company comes with several downsides that can have lasting impacts:
Some assets may not reach their full sale value – 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 will be called in.
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.
How Company Debt Can Help with Liquidation
We know that liquidation can be complex and challenging for everyone involved. Our goal is to reduce that burden via empathetic and professional support throughout, helping you navigate this challenging period with confidence.
Our licensed insolvency practitioners (IPs) are experts in handling every aspect of the liquidation process, from initial consultations to final dissolution. We’ll ensure your liquidation process follows all legal requirements, minimising the risk of penalties or legal complications.
If you need help understanding the best way forward for your company, use the live chat during working hours, or call us on 0800 074 6757.
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.
References
The primary sources for this article are listed below, including the relevant laws and Acts which provide their legal basis.
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