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Liquidation is an option when your company is insolvent due to cash flow difficulties, on a balance sheet basis or you have creditors threatening to take action against it. You may be faced with either Compulsory Liquidation or Creditors Voluntary Liquidation (CVL), Wilson Field can help in these stressful times.

 

Liquidation Explained

Liquidation is a process that can appear daunting, but actually may not be as complicated as you think and in certain circumstances the Directors can purchase the assets back for a fair value. Liquidation involves the realisation of company assets such as machinery, property or vehicles in order to make Dividend payments to Creditors. Liquidation can give Directors a clean break to move on from the company and quickly removes Creditor pressure.

Liquidation Processes Available

Whilst Liquidation fundamentally involves the realisation of company assets, there are different Liquidation processes available depending on the situation the company finds itself within.

Creditors Voluntary Liquidation (CVL)

If the company is insolvent and can no longer pay its liabilities and continue trading, it could enter into Creditors Voluntary Liquidation (CVL). This process is instigated by the Directors of the company and enables a company’s insolvent position to be dealt with very quickly.
Find out more information on Creditors Voluntary Liquidation (CVL)

Members Voluntary Liquidation (MVL)

Another type of Liquidation occurs where the company is solvent but circumstances dictate that it should be wound up in an orderly and professional manner. This is a Members Voluntary Liquidation (MVL). This could occur for example where the purpose for which the company was created no longer exists, for tax planning reasons or retirement of the Directors/Shareholders.
Find out more information on Members Voluntary Liquidation (MVL)

Compulsory Liquidation

In simple terms this is the corporate equivalent of bankruptcy and it involves a Court process. Whilst this can be instigated by Directors, it is primarily creditors that petition for a Compulsory Winding up Order.
Find out more information on Compulsory Liquidation

Liquidation Advantages

  • Gives a clean break for Directors to move on from the company.
  • Allows Creditors to submit their claims in an orderly way.
  • The Directors/Shareholders may be able to purchase the assets at fair value, therefore allowing an element of the business to live on.
  • Employees may be entitled to claim redundancy pay from a government fund.
  • Quickly removes Creditor pressure.
  • Stops further legal action.
  • Usually there is no fee to pay as the Liquidator’s fees are paid out of the realisations of the company assets.
  • Immediate action minimises the possibility of wrongful trading action being brought against the Directors personally.

What does a Liquidator do?

The Liquidator is a Licensed Insolvency Practitioner and will prepare everything needed for the creditor’s meeting and will facilitate or “run” the Liquidation once he/she has been appointed at the Creditor’s meeting. The types of duties they will perform include (but are not limited to:

  • Filling out the official forms.
  • Calling all meetings.
  • Making staff redundant.
  • He/she will also investigate the conduct of the Directors before the company entered into Liquidation.

The Liquidator also has the job of collecting and selling the assets of the company (if there are any) after they have been independently valued by a qualified valuer/auctioneer. It is possible for the Director to buy the assets back as long as it has been proven that they have been valued and sold a fair marketable price. The Liquidator may choose to advertise and market them to the public to justify to Creditors that no higher offers have been received.

Once the assets have been sold the Creditors’ claims will be worked out, and they will be paid from the proceeds of the assets. This can be referred to as paying a dividend to Creditors.

Is Liquidation right for me? How can I find out what action to take?

If your company is insolvent and is no longer viable, immediate action needs to be taken to deal with the company’s insolvent position. Dealing with financial problems quickly helps with minimising Creditor exposure and the risk of wrongful trading accusations. If Liquidation is the appropriate route, the following is an outline of what you need to do to get your company wound up cleanly and professionally.

  1. Get in touch with a Licensed Insolvency Practitioner (IP)

    As already covered above there are three basic types of Liquidation, so you may be wondering how you know which one is right for your company. The starting point is to find a Licensed Insolvency Practitioner (IP) and here at Wilson Field we have 9 IP’s, of which 7 are licensed and regulated by the ICAEW. All of our IP’s have a wealth of experience in dealing with all types and sizes of companies.

    The Insolvency Practitioner takes on the role of Liquidator, who has the responsibility of fulfilling all the legal requirements to bring the company to a formal conclusion. Initially we will discuss your options over the phone, or if you prefer, you can e-mail us at enquiries@wilsonfield.co.uk or chat to one of our online Insolvency Advisors. Following this conversation, we can arrange a FREE no-obligation consultation anywhere in the UK at your convenience. All conversations are confidential, without any commitment and will cost you nothing!

  2. Consider your Options

    As well as considering the different methods of Liquidation, there may be other alternatives. No two situations are identical but depending on your company’s circumstances, options could include:

    Our experienced Insolvency Advisers can discuss all options available to you, not just limited to Liquidations. We will advise you how these will impact your business, the time frames and costs.

  3. Collation of Information

    If Liquidation is deemed to be the most appropriate step forward, then the IP will work with you to gather the necessary information to conduct the Liquidation. The information required will include the following:

    • Location of Books and records.
    • Details of any company assets, including cash and book debts.
    • Current list of Creditors and other liabilities with details of how much is owed, names and addresses and any reference numbers.
  4. Creditors Informed & Creditors Meeting Held

    Creditors are informed of the Company’s position and formal notification of the creditors meeting is sent seven days before (plus postage). The meeting is also advertised in the London Gazette, a minimum of 7 days before it takes place. A Director must attend the creditors meeting, and whilst he/she must formally act as chairman, in practice the Insolvency Practitioner will lead the meeting. The meeting is usually nothing to worry about and normally doesn’t last very long, often having no creditor attendees. Creditors can vote via post or alternatively they can appoint a third party to attend on their behalf; this is called voting proxy.

  5. Asset Valuation, Sale and Liquidation commences

    Assets will be valued in order to ascertain a value (this may have been done before liquidation starts). Once the valuation is received by the liquidator, you have two options.

    • Let the assets go to auction or to an un-associated party and achieve the best price.
    • If you wish to, you may have the option to buy the assets back as long as it can be demonstrated that selling the assets back to you is in the creditor’s best interests and at fair market value. (The asset sale may have been pre-agreed before liquidation, this is known as a Pre-Pack Liquidation).
  6. Settlement of Creditors’ claims

    The outcome of the sale is relayed to the Creditors and if there is any value left after the Liquidation process, payments are made for settlement of their claims.

Liquidation Do’s & Don’ts

  • Do maintain a firm understanding of the company’s position at any given moment
  • Do collect all financial information together ready for the Liquidator
  • Do hold regular meetings and take minutes of any notable decisions made
  • Do seek professional insolvency advice
  • Be completely honest with all of your staff and contacts
  • Do build a picture of the company’s liabilities and assets and maintain a good knowledge of the current value of those assets.
  • Don’t take any client or customer deposits if you are aware there is a reasonable chance you cannot complete
  • Don’t ignore any problems in the hope that they will fade over time
  • Don’t give payment to any creditor in preference over another as they are all to be treated equally
  • Don’t ignore any legal proceedings that someone may begin against you
  • Don’t make any promises to creditors or anyone else that you cannot keep.

Liquidation FAQ’s – Some common questions asked by Directors when entering into Liquidation

Can Liquidation be used for a Solvent Company?

Yes, solvent companies who are currently in a stable financial position but wish to release equity tied up in assets in a tax efficient manor can do so via a Members Voluntary Liquidation. Find out more information about Members Voluntary Liquidations.

Can I Liquidate my own Company?

Unfortunately, it is not possible, or legal to liquidate your own company. An insolvency practitioner needs to be instructed to achieve this outcome.

What do Directors have to do?

As outlined in ‘Liquidation process’ the directors must provide all of the company’s books and records including a list of assets and liabilities.

A Director of the company must attend the Creditors meeting and acts as Chairman of the Creditor’s meeting. The Insolvency Practitioner is in attendance and more than likely will ‘run’ the meeting.

When an Insolvency Practitioner is appointed and the company is officially ‘in Liquidation’, the Liquidator will request information including the filling out of a questionnaire. The Directors need to comply; it is an offence not to do so.

Can I be a Director of another company if my company is Liquidated?

It is possible for directors to become a director of another company, but only if they have acted correctly and not been disqualified. The only aspect of a director setting up a new company that needs to be taken into consideration, is if a choice is made to trade under the same or similar name (click here for information about trading under the same name)

Wilson Field offers a fast and efficient Liquidation service with nationwide coverage from a network of regional offices, meaning a free consultation can be arranged at a time and location most convenient to you.

If you think Liquidation may be the way forwards, get in touch today to arrange a free confidential consultation with no obligation.

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Types of Liquidation - Further Reading

Further Reading

Liquidation question? What are your options? We can help you find a solution.

Wilson Field give FREE Insolvency advice that you can trust!

R3: Association of Business Recovery Professionals ICAEW - The Institute of Chartered Accountants in England and Wales The Turnaround Management Association (TMA)
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