Voluntary liquidation is an umbrella term for several different ways directors can decide that a company should be liquidated (closed). This is in contrast to compulsory liquidation (involuntary liquidation), where a creditor issues a winding up petition to start the liquidation process. Another feature of voluntary liquidation is that it can be chosen by the directors of both solvent and insolvent companies.
There are 2 types of voluntary liquidation: Members Voluntary Liquidation (MVL) and Creditor Voluntary Liquidation (CVL). The key thing to understand is that an MVL is only possible if your company is solvent (it can pay it’s debts broadly speaking).
A CVL applies where the company is insolvent (has less assets than debts and/or cannot pay debts due now or in the near future). In this situation, there may be reasons to start the liquidation process yourself rather than wait for angry creditors to start a compulsory liquidation process.
It’s rarely easy to make the decision to liquidate your company, especially if it is in financial difficulties. The liquidation processes, risks, costs and implications can be confusing and stressful. Mistakes and delays can be costly and create potential personal liability risks. Good advice is recommended. Our licensed Insolvency Practitioners are experienced and practical. Please do call or email to have a free, confidential chat about voluntary liquidation.
See below to understand more about the process, potential costs and consequences of voluntarily liquidating a company in the UK.
Creditors Voluntary Liquidation
This is when a company’s own shareholders vote to wind it up. Once directors have concluded that the logical decision is to close down the company, 75% of shareholders votes are required to instigate the process.
While protecting the company from further legal action, the choice to liquidate places the company in the hands of an insolvency practitioner (IP). The IP will close down the company, and sell any assets to seek the best return for company creditors, in order of priority.For more detail visit our main page on creditors voluntary liquidation.
Members Voluntary Liquidation
Members voluntary liquidation is a tax efficient way to close a solvent limited company.
If a director is retiring, or simply wishes to closes a company without debts but with assets, a members voluntary liquidation may be the best option. An insolvency practitioner is required as part of the process to close the company via the sale and realisation of assets.For more detail see our main page on mvl.
What Does it Mean when a Company Goes into Voluntary Liquidation?
Going into voluntary liquidation means the directors decide that the company should be liquidated.
At that point, choosing liquidation means you’re taking steps to close the company via the formal legal procedure..
Once the Insolvency Practitioner (IP) has taken over, your role as director will cease, though you will be requested to provide certain pieces of information to the IP as the process unfolds.
What are the Benefits of Voluntary Liquidation ?
One of the primary advantages to choosing creditors’ voluntary liquidation, rather than waiting to be compulsorily wound up is that you can find your own insolvency practitioner and make the decision to liquidate within a timeframe that works for you. That’s a considerably preferable scenario from receiving a winding up order via the court.
Demonstrating you have taken a proactive role towards fulfilling your debt obligations is also beneficial, should there be investigations into director conduct.
What’s the Cost of Voluntary Liquidation?
Some company directors, aware of the businesses situation, delay putting their company into creditors’ voluntary liquidation for fear of not being able to pay for it. The important point to remember is that, assuming there are some company assets, any costs are taken from the liquidation itself. The only time directors would have to pay for the liquidation out of their own pockets is where the company assets fall below the basic cost of the liquidation, which is about £5000 + VAT. Obviously, this will vary depending on the complexity of the case.