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Company Liquidation

Company Liquidation, technical jargon to frighten the masses

Authored by Phil Meekin

Phil Meekin

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Approximate read time: 2 minutes

Company Liquidation is a term that instils dread to almost every leading director. A liquidation can conjure images of bailiffs, removal men and locksmiths shutting down your business for good. In reality, most insolvency practitioners aren’t out there looking for blood and are looking to get the best outcome for you.

Although liquidating your company means the death of a business, liquidation can actually provide a viable option to stopping a bad situation in its tracks, as well as preventing the position of creditors further deteriorating.

What is Company Liquidation?

Company Liquidation is not taking the easy way out, but can actually a far simpler process than most directors realise. Company liquidation is a broader term that can be used to describe two different liquidation procedure, which are applicable to both solvent or insolvent companies.

Solvent and Insolvent Liquidation

Insolvent can be being defined as a company that is unable to make payments for the running of the business as and when they fall due, or where liabilities outweigh assets on the business’ balance sheet. A company which finds itself insolvent, would go through the process of a creditor’s voluntary liquidation. This is normally a last resort for struggling companies and enables them to properly and legally close the business, whilst maximising a return to their creditors.

A solvent company is defined by having enough assets, to pay off all of liabilities and including staff, in the event of closure. A members voluntary liquidation is the process used when it comes to closing down a solvent company. If the company no longer has a purpose, or the directors are looking to retire, it allows the company to be closed in the most efficient manner possible, maximising the best possible return for directors through entrepreneur’s relief.

company liquidation

Compulsory Liquidation

Compulsory liquidation is generally the least favourable insolvency process and best avoided if possible. If your company has been threatened with the issue of a winding up petition, the process of having your company wound up by your creditors has begun.

A compulsory liquidation will see the business cease to trade, company assets sold with any proceeds (after costs) distributed to creditors, staff being made redundant and the company ultimately being struck off the register. It is a process that is forced onto a company by its creditors.

This process is not voluntary and done via the courts, the outcome for directors and shareholders is likely to be less favourable than if directors had sought a Creditors Voluntary Liquidation.

In summary

Whilst Company Liquidations are often about as popular with directors as the prospect of having dinner with the in-laws, they are unfortunately a necessary phenomenon designed to minimalise creditor losses and prevent a bad situation getting worse.

Hopefully, directors are starting to dispel the misconception that liquidation is just a byword for razing a company to the ground, and that actually, liquidating a company can be the right thing to do in a large array of situation.

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