Liquidating a company can be a daunting prospect, but understanding the process can make it more manageable.
In essence, liquidation is the procedure of closing down a business and distributing its assets to claimants. This is typically a last resort for companies facing insurmountable financial difficulties, but it can also be used by solvent companies.
When you liquidate:
Your business operations cease
Company assets are sold
Proceeds are used to settle creditor claims
Liquidation isn’t always a sign of failure. For some, it’s a strategic exit. For others, it’s the best way to address overwhelming debt. Whatever your situation, it’s crucial to understand the implications for your business and personal finances.
Are you considering liquidation?Let’s discuss your specific circumstances and explore all available options. Our team can guide you through each step, ensuring you make informed decisions about your company’s future.
What’s the Process for Liquidating an Insolvent Limited Company?
Here’s how you go about liquidating a company that can’t pay its debts:
Engage an Insolvency Practitioner (IP)
When considering liquidation, it’s crucial to understand that you must engage an Insolvency Practitioner (IP). Here’s why:
An IP is legally required to oversee the liquidation process. Directors cannot liquidate a company on their own.
IPs ensure the liquidation process is fair, transparent, and compliant with the law.
IPs have the expertise to navigate the complexities of liquidation, providing you with the necessary guidance.
To start the process, find and contact an IP to ensure your company’s liquidation proceeds correctly and within the legal framework.
Board Resolution
As a director, you’ll need to convene a board meeting to formally decide on liquidation. This decision should be properly documented in your company records.
Instruct an Insolvency Practitioner (IP
Once you’ve decided to liquidate, your next step is to engage a licensed IP. They’ll assume control of your company’s affairs and handle all subsequent steps of the liquidation.
Creditors’ Meeting:
The insolvency practitioner will convene a meeting with your creditors to present the company’s financial situation. During this meeting, creditors will have the opportunity to confirm the appointment of the liquidator.
Asset Valuation & Sale
The liquidator appoints an independent valuer to assess all company assets, including everything from office equipment to property, and then sells them to raise funds.
Debt Settlement
The funds from asset sales are used to pay off creditors in a specific order of priority. Secured creditors are paid first, followed by unsecured creditors.
Final Distribution
Any remaining funds, after settling debts, are distributed to shareholders. This occurs only if there are surplus funds left after all creditors have been paid.
Dissolution
The liquidator files for dissolution with Companies House. Once approved, your company is officially closed and removed from the register.
What’s the Process for Liquidating a Solvent Limited Company?
If your company is solvent, the process is broadly similar, but with a few key points of divergence as I’ll explain.
Your journey begins when your board passes a resolution to liquidate and makes a sworn declaration of solvency. You’ll then gather your shareholders to pass a special resolution and appoint a licensed insolvency practitioner.
Your appointed liquidator will:
Cease company operations
Value and sell assets
Settle any outstanding creditors
Distribute remaining funds to shareholders
The process concludes with a final meeting and Companies House filing.
What Happens After I have Liquidated my Company?
Once your company has gone through liquidation, there are a few things that will happen:
Your company will officially close and be removed from the company register.
The insolvency practitioner will have sold off your company’s assets and turned them into cash.
Creditors will be paid back as much as possible using the money from asset sales.
In most cases, any remaining debts that cannot be paid will be discharged.
Directors and shareholders are usually not personally responsible for your company’s debts. (However, if directors have personally guaranteed loans, they may still be responsible for repaying those debts.)
Employee claims, such as unpaid wages or redundancy payments, may be covered by the government if your company doesn’t have enough money to pay them.
The insolvency practitioner will prepare and submit final reports to relevant authorities, including the government and the insolvency service.
Once all the necessary steps are completed, and creditors are satisfied, your company will be officially dissolved, and its name will be removed from the register.
How Long Does the Entire Liquidation Typically Take from Start to Finish?
For a straightforward liquidation, you’re typically looking at a process that takes between 6 to 12 months from start to finish. This timeframe covers everything from your initial decision to liquidate through to the final dissolution of your company.
Several factors can influence this timeline:
The size and complexity of your business
The number and nature of your assets
The extent of your creditor base
Any legal issues or disputes that need resolution
In some cases, particularly for larger or more complex businesses, the process might extend beyond a year. Conversely, for very small companies with few assets and creditors, it could be completed more quickly.
How Company Debt Can Help
If you’re contemplating liquidating your limited company, engaging with an insolvency expert is essential. Company Debt boasts a dedicated team of licensed insolvency practitioners, offering nationwide support to businesses in distress.
We’re equipped to help you comprehend the full scope of your options for closing your company, regardless of its financial state, and determine if liquidation is a viable route for you.
FAQs on How to Liquidate a Limited Company
How do I appoint a liquidator?
A company usually finds a liquidator through a Google search or an accountant’s recommendation. This liquidator usually stands unless the creditors, at a later date, nominate a different insolvency practitioner.
How much does it cost to liquidate a company?
Every firm will charge its own fee for liquidation, there is no set cost. We charge £4000-7000, on average, to liquidate a small business in the UK.
Is it free to liquidate a company?
There are no fees charged by the government or other regulatory bodies to liquidate a company. However, the process of liquidating a company comes with a legal requirement to use insolvency practitioners, who charge fees for their services.
What happens to the company’s assets and debts during liquidation
The company’s assets will be sold to pay creditors during the liquidation process. All the debts (save those personally guaranteed) will end with the dissolution of the company itself.
