Liquidation is the process where a company stops trading and its assets and property are turned into cash, in order to pay off its debts. The process can either be compulsory or voluntary, and there are three types:
Creditors Voluntary Liquidation is when the Directors and shareholders of the business voluntarily decide to fold the company because it is insolvent and so doesn’t have the sufficient assets to cover its debts.
Compulsory Liquidation is when the Creditors who have not been paid by the business apply to the High Court to wind up the business, the business is then liquidated and the creditors paid.
Members Voluntary Liquidation is the process used when a company is solvent, however the company’s shareholders decide to wind up the company in order that the assets be used to pay off the debts owed in full.
Before starting the process you need to be sure you want to liquidate your business and choose the most suitable type. Once you have done this, you then need to appoint a liquidator who will start the process.
The role of the liquidator
A liquidator is a qualified accountant and registered liquidator and they will either be instructed by you or by the court. A liquidator needs to be instructed to ensure that the process is carried out properly. If you appoint them independently you will need to show that you are acting in the best interest of your creditors and to ensure you are taking the right actions so that you are not held personally liable for the businesses debts.
Because the types of liquidation vary the process of liquidation will vary slightly, however the liquidator’s job is to:
Seize and protect the value of the assets
Protect the interests of the creditors
Carry out investigations and make reports to companies house
Recover any money owed to the company
Pay creditors and shareholders if possible
Formally close the company
The Advantages of liquidation
Your debt is written off
You can start another business
Legal action is stopped
The Directors are usually able to move on
The Disadvantages of liquidation
The company has to close down so if you want to go back into business you will need to form a new company
If you want to keep some of the company’s assets you will need to buy them
If you keep running businesses that continue to go into liquidation you may find that people no longer have faith in your business