Voluntary liquidation is a choice made by the directors of both solvent and insolvent companies.

Read our complete guide below which covers the process, timelines, potential costs and the consequences of voluntarily liquidation a company in the UK.

What is Creditors Voluntary Liquidation?

Insolvent voluntary Liquidation, also known as creditors voluntary liquidation, 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, a 75% is 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.

While voluntary liquidation can be chosen to close a solvent company in a tax-efficient manner (members voluntary liquidation), the common use of the term when directors of an insolvent company choose the process, is termed Creditors’ Voluntary Liquidation.

What is a 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 means an insolvency practitioner is used to close the company via the sale and realisation of assets.

Voluntay Liquidation

What Does it Mean when a Company Goes into Voluntary Liquidation?

Here’s we’re assuming that we’re talking about insolvent liquidation.

Going into voluntary liquidation means you’ve reached a point where you feel the company cannot continue. You’re either about to be forced into compulsory liquidation by creditors, or you’ve simply recognised the company is insolvent and has no future.

At that point, choosing liquidation means you’re taking steps to close the company via the formal legal procedure, you’re going to bring in professional help, and you’re going to get creditor pressure off your back.

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 the level of directorial control. Choosing to liquidate means 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 directorial conduct.

The overall benefits of liquidation are that:

  • company debts are written off completely
  • an end to legal action
  • staff can claim redundacy pay
  • You can cancel any leases
  • The cost is relatively low
  • you don’t need to go to court

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.