How to Liquidate Your Limited Company
Facing the difficult decision of liquidating your business can be overwhelming. We understand the challenges you’re facing and are here to help guide you through the process.
This guide provides UK company directors with practical steps and essential considerations for liquidating their company, whether you’re dealing with financial difficulties, insolvency, or simply closing a solvent business.
- What Are the Options for Liquidating My Company?
- Can I Liquidate a Company on My Own?
- What Happens When I Liquidate my Company?
- How do I Liquidate?
- What Happens After I have Liquidated my Company?
- What Happens if We Can’t Afford to Liquidate the Company?
- How long does it take to Liquidate a Company?
- Can you Liquidate a Company and Start again?
- FAQs on How to Liquidate a Limited Company
What Are the Options for Liquidating My Company?
When it comes to closing your company, there are three main ways to do it: Creditors’ Voluntary Liquidation (CVL), Members’ Voluntary Liquidation (MVL), and Compulsory Liquidation. The best option for your company will depend on your specific circumstances.
Creditors’ Voluntary Liquidation (CVL)
If your company is insolvent, meaning it cannot pay its debts, CVL is the most right option. In a CVL, the company’s directors appoint an insolvency practitioner (IP) to oversee the liquidation process. The IP will sell the company’s assets and use the proceeds to pay off creditors. Creditors will have a say in the CVL process, and they will be paid in order of priority.
Members’ Voluntary Liquidation (MVL)
If your company is solvent and you want to close it down voluntarily, MVL is the way to go. In an MVL, the company’s directors declare that the company can pay its debts within a year. A liquidator is then appointed to sell the company’s assets and pay off shareholders. Creditors will still be paid in an MVL, but they are not the main focus.
Compulsory liquidation is not a choice; it happens when a court orders it, often because of unpaid debts. In a compulsory liquidation, the court appoints a liquidator to manage everything, selling assets and paying creditors. Creditors push for compulsory liquidation when they’re owed money.
Can I Liquidate a Company on My Own?
Whether you’re liquidating a solvent company through an MVL or using a CVL to close an insolvent business, remember that you must have a licensed insolvency practitioner by your side.
Both MVLs and CVLs are initiated by directors, meaning you decide to put your company into liquidation. However, you can’t do it on your own.
If you’ve made the choice to consider liquidating your business, your first step is to consult with a licensed insolvency practitioner. They’ll discuss your options and assess if liquidation is the right path for your company’s circumstances and future. If liquidation is the best solution, the insolvency practitioner you appoint will manage the entire process for you, dealing with creditors and ensuring a smooth winding down of the company.
What Happens When I Liquidate my Company?
During liquidation, all the company’s assets (valuable belongings) are sold off to raise money. This money is then used to pay off the company’s debts, starting with those who have a claim to specific assets (secured creditors) and then moving on to those who don’t (unsecured creditors).
If there isn’t enough money to pay off all the debts, some creditors may not get paid in full. However, as a director, you generally won’t be personally responsible for the company’s unpaid debts, unless you signed a personal guarantee to repay specific loans.
Here’s a summary of what happens during liquidation:
- An insolvency practitioner is appointed to oversee the liquidation process.
- All company assets are assessed and valued.
- Assets are sold off to raise money.
- Creditors are paid in order of priority, starting with secured creditors.
- Any remaining debts are typically discharged, and directors and shareholders are generally not held personally liable.
How do I Liquidate?
Here’s how you go about liquidating a company:
Step 1: Clarify your Position
Before you begin, figure out if your company is solvent or insolvent. This step lays the groundwork for the liquidation process. You can use our simple insolvency test tool to make this easier.
Step 2: Gather Documentation
Get a clear picture of your company’s financial situation by making a list of what it owns (assets) and what it owes (liabilities). This means noting down everything your company has. This documentation will make it easier for an insolvency practitioner to do their work.
Step 3: Engage an Insolvency Practitioner (IP)
When considering liquidation, it’s crucial to understand that you must engage an Insolvency Practitioner (IP). Here’s why:
- Legal Requirement: An IP is legally required to oversee the liquidation process. Directors cannot liquidate a company on their own.
- Fair and Proper Process: IPs ensure that the liquidation process is fair, transparent, and compliant with the law.
- Expert Guidance: IPs have the expertise to navigate the complexities of liquidation, providing you with the necessary guidance.
- Protection: They safeguard your company’s interests during the liquidation.
To start the process, find and contact an IP to ensure your company’s liquidation proceeds correctly and within the legal framework.
Step 4: Start the Liquidation
Once you’ve decided on the best way to liquidate and gathered the necessary information, it’s time to begin. Here’s what to do:
- Vote on a Resolution: As a director, you’ll take part in a formal vote within your company to decide on the liquidation. This vote is crucial to get things started.
- Notify Stakeholders: Depending on the chosen liquidation method, you may need to inform creditors, shareholders, and others about the decision. The steps for this notification vary depending on your chosen liquidation type.
Remember, once the resolution is passed, an Insolvency Practitioner (IP) takes over and manages the entire liquidation process for you. They handle all the details and ensure everything goes smoothly.
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 register of companies. This means that your company will no longer legally exist.
- The insolvency practitioner will have sold off your company’s assets and turned them into cash. This money will be used to pay off your company’s debts.
- Creditors will be paid back as much as possible using the money from asset sales. Secured creditors, who have a claim to specific assets, will be paid first, followed by unsecured creditors. If there isn’t enough money to pay back all creditors, some creditors may not receive full payment.
- In most cases, any remaining debts that cannot be paid will be discharged. This means that your company is no longer responsible for these debts, and they will be effectively written off.
- 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 can help employees make these claims.
- 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.
What Happens if We Can’t Afford to Liquidate the Company?
The costs of liquidation, including the fees of the insolvency practitioner, are typically covered by selling off the company’s assets, but it’s important to understand the financial implications of liquidation before you start the process.
Directors are generally not personally responsible for liquidation costs unless they have provided personal guarantees for company loans. But if the company can’t cover the costs, directors may have to cover these expenses personally.
In some cases, the government may provide assistance to employees (including directors) for unpaid wages or redundancy payments through the National Insurance Fund. This can help ease the financial burden on both the company and its directors.
How long does it take to Liquidate a Company?
The time it takes to liquidate an insolvent company can vary, but typically it ranges from 6 to 12 months. This duration can be influenced by factors such as the size and complexity of the company, the nature of its assets, and any legal issues that need to be resolved.
Can you Liquidate a Company and Start again?
Yes, you can liquidate a company and start a new one, but there are important legal and ethical considerations to bear in mind. When a company is liquidated, especially in the case of insolvency, the directors and shareholders may face restrictions on starting a similar business immediately. These restrictions are in place to prevent what’s known as “phoenixing” – the practice of carrying on the same business through a different company to avoid debts and liabilities.
The UK’s Insolvency Act imposes specific rules about reusing a company name. Directors of a liquidated company are prohibited from using the same or a similar name for another company for a period of five years, unless they meet certain exceptions. Additionally, directors’ conduct during the liquidation process is scrutinised to ensure there was no wrongful or fraudulent trading.
It’s important to seek legal advice to understand fully the implications of starting a new company after liquidation, and to ensure compliance with all relevant laws and regulations. This helps in protecting both the interests of the creditors of the liquidated company and the integrity of the new business venture.
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.
How long does the liquidation process take?
The length of the liquidation process can vary depending on the size and complexity of the company, the number and nature of assets, and the number of creditors. One year is an average timeframe.
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.