Company Liquidation

Below are the most common reasons why people are discouraged from taking necessary action to liquidate their company.  In some cases actually trying to avoid liquidation by selling the company.  Reputational damage If you do not pay your creditors you will suffer reputational damage whether you have sold it to another company or liquidated it formally.  You may not be able to get business insurance and your current insurance may not be renewed if you have another company. This is completely untrue.  We liquidate companies all the time and the directors do not have this problem.  They might have issues getting cover if they do it more than once.  Some very riskaverse insurers might turn you down but there are literally thousands out there.  There may be a tiny increase in the premium and you may have to answer a few more questions for the insurers piece of mind.  You won't be eligible for any business finance or loans from banks or other lenders Again this is simply not true.  All banks and lenders recognize there is some risk in running a business and a failure of a start up or a liquidation is not going to be a problem.  It will be if there appears to be a pattern of multiple liquidations though.  Even then it will not have any affect on your personal credit rating.  Company credit scores are totally separate.  You will be disqualified as a director if the company goes into liquidation This is completely wrong. Only if you have been fraudulent or deliberately misled creditors knowing the business is going to fail will you face disqualification or be personally liable for the debts (note that if you have personally guaranteed loans then yes you will be liable ). This worry tends to make directors “freeze up” and take no action out of sheer panic.  You can’t be a director again if the company fails Completely wrong again (see above).  You may not be able to obtain another VAT registration. If you do, HMRC may require you to pay a significant deposit. If you owe the HMRC a substantial amount of VAT then they will wind the company up with a petition, so it will be liquidated anyway. The former directors during the time the money was owed will be on their radar.  It is better to do a voluntary liquidation in these circumstances.  Yes you may need to provide a deposit in a new company but probably only if you owed them substantial sums.  Large companies and local authorities wont grant tenders to directors of liquidated companies What is actually being said here is that large companies won't give tenders to insolvent companies!  Well of course they wouldn't.  A previous liquidation by a director will not preclude them.  There is no mention of any such exclusions in the The Public Contracts Regulations 2015.  The NHS will not employ anyone who has liquidated a company Err no.The one area where liquidating a company can have some personal issues is if you are going to work in very sensitive finance areas and perhaps national security.  This is mainly because they worry that a creditor could apply pressure on you or you could be more easily bribed if you have lost a lot of money in the past.  However, avoiding voluntary liquidation may well result in a compulsory court liquidation process that is likely to lead to even worse outcomes. 

Dissolution as a way to close a company with no money If the company has no money and it needs to close down then, providing that it does not owe creditors substantial sums, it can seek to be struck off or dissolved.  This process is known as dissolution and is governed by Sections 1003 to 1008 of the Companies Act 2006 (formerly Section 652 of The Companies Act 1985)However, bear in mind that dissolving the company (removed from the Companies House Register) can only happen if the following conditions apply:The company has not traded for three months; there must be a genuine cessation of trade. The company has no assets, property or cash at the bank. The creditors are informed, requesting their permission for the company dissolution. Creditors are given three months to consider the request to dissolve the company and can reject such a request. The company has not changed its name during this period. The company has not disposed of any property or assets (this may include land and buildings, plant and equipment, debtors and other assets).If the company does have debts, say about £5000+, then really the company needs to be liquidated.  A company that is insolvent will need to be liquidated using either a Creditors Voluntary Liquidation (CVL) or the creditors themselves will petition the court, using a winding up petition, to force the company into a court led process also known as a compulsory liquidation.So, if the company has no money and the directors do not have the funds to go down the route of a CVL then they will need to brace themselves for the compulsory process.  This is risky for them personally and is not a pleasant process.  What is more it can take about a year to be completed stopping the directors from moving on with their lives.  This will be the consequence of running down all the funds in the company.Even if you do manage to dissolve the company with debts then it can actually be resurrected up to 3 years later and wound up by court with the directors being investigated.  This is covered by the The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act. What about using directors' redundancy to pay for the liquidation? Beware companies telling you this.  Directors will need to show that they were legitimately employed i.e. being paid a proper salary via PAYE for the work they have done.  Being paid for holidays and having a proper contract.  The Redundancy Payments Office (RPO) are routinely rejected directors claims as they see their "salaries" often as just extracting sums from the company in their capacity as office holder.  If they are working all hours on the business but only paying themselves £700 a month on PAYE then that is below minimum wage so they are not actually "legally employed" Can I liquidate the company myself? No you can't. It is true that only its shareholders can start the process but a licensed insolvency practitioner has to actually do the liquidation.

An Insolvency Practitioner (IP) is a professional who is authorised, and licensed, to act in the interests of an insolvent company, partnership or individual.  In respect of a company, they aim to either rescue it or wind it down in a fair manner to maximise the interest of all the creditors according to the law.  They carry out their work in accordance with the Insolvency Act 1986 and the rules of their regulatory authority such as the Insolvency Practitioners Association (IPA),  the ACCA, ICAEW, or the ICAS. Should I appoint an Insolvency Practitioner? Directors are most likely to get in touch with an insolvency practitioner if they are worried about the financial situation of their company.  They may face serious legal threats from suppliers, banks, HMRC, and may even face petitions to wind their company up. It might be that bailiffs have visited the registered office.An insolvency practitioner may also be appointed by the court, where a petition to wind the company up has come from a creditor.  In addition, a secured creditor, such as the bank or factoring company, can appoint an insolvency practitioner as an administrator i.e. put the company into administration resulting in you losing all control.So, it is generally advisable to seek the services of an insolvency practitioner as soon as you are aware that your company is insolvent.  If you are not quite sure if this is the case, then read our Insolvency tests page.  What are the roles of an insolvency practitioner? Liquidator Once a liquidator is officially appointed, they oversee the closing down the business and investigating the circumstances that led to the company’s insolvency.Their main purpose is to convert any remaining assets into cash and pay as many creditors as possible with those funds, hoping to pay dividends too. However, some creditors may not see a return due to liabilities that outweigh the financial worth of the remaining assets. Liquidators ensure creditors are all treated in accordance with their legal rights.A liquidators role involves a variety of tasks: arranging meetings, completing paperwork and investigating the directors’ conduct. Administrator When a company goes into administration, the insolvency practitioner effectively runs the company for the benefit of the creditors.  They will try and sell the business assets. If there are no takers, then they will wind down the company.  Administration’s primary aim is rescue and it needs to have a better result than liquidation for the creditors as it is a complex and more costly process. Nominee and Supervisor of a company voluntary arrangement. A company voluntary arrangement (CVA) is an insolvency process that allows a company to pay off a proportion of its debts over an extended period of 3-5 years.  The arrangement must be agreed by the creditors.  The role of the IP as a nominee is to ensure that the proposed CVA is “fit, fair and feasible.  As such they need to be satisfied that the company has a reasonable prospect of rescue and can afford the payments to the creditors.  As supervisor, the insolvency practitioner is responsible for collecting the payments from the company to pay back the creditors, known as a dividend.  If the company cannot pay, then the supervisor will wind up the company as liquidator. What are the qualifications needed to be an insolvency practitioner? An insolvency practitioner will have passed the Joint Insolvency Examination Board (JIEB) exams which are known to be very tough.  Due to the financial nature of insolvency most practitioners will have extensive experience as an accountant and may well be qualified either by the ACCA, ACA and CIMA.  One particular reason why insolvency practitioners need to be well qualified is that it should be remembered that an IP acts in their personal capacity when dealing with insolvent companies.  They are not protected by the company they work for.  When taking appointments they have to take out an insurance policy to protect creditors from losing out if they are negligent or criminal. How can I find an insolvency practitioner? Most insolvency practitioners work at a firm such as us KSA Group.  Be wary that many people offering advice to insolvent companies are not actually licensed to take on appointments but will just take some fees and then you will end up having to appoint one anyway or you firm will be wound up by the court.  To check if someone is actually licensed then you can search thehttps://insolvency-practitioners.org.uk/ipa-search-members/https://www.icas.com/find-a-cahttps://www.gov.uk/find-an-insolvency-practitioner

After a company goes into a liquidation process, its assets, like property and stock, are "liquidated". This means they are turned into cash for payment to the company's creditors. Then your company will be removed from the register at Companies House as it ceases to exist.There are three types of liquidation:Creditors Voluntary Liquidation Compulsory Liquidation Members Voluntary Liquidation (cash is returned to the members as the company is solvent)Note that shareholders and directors start the voluntary liquidation process. However, in compulsory liquidation, the creditors start the process by applying for a court order. Who acts as a liquidator? A company has to be liquidated by a Licensed Insolvency Practitioner who has a duty to act in the best interest of creditors.  This means they will try and get the best return when selling assets and dealing with the companies affairs. What is Creditors Voluntary Liquidation? Creditors voluntary liquidation (CVL) is the most common process in the UK, with about 15,000 of these liquidations each typical year. When might the company go into liquidation? Usually, the company runs out of cash and cannot pay its debts on time. The directors are concerned that the business is simply not viable as creditors threaten legal action. In essence, it is appearing as an 'insolvent company'.The company directors then ask a liquidator,  to convene a meeting of the company's creditors within 14 days. At the meeting, which is now often held virtually, the IP will present a statement of affairs of the company to outline the current position and explain the procedure. The creditors then vote on the appointment of the liquidator to "liquidate" the assets to try and repay them (hence it is called a "creditors" liquidation).Once the liquidator is appointed, the directors no longer have any control or duties in relation to the company, but they are duty-bound to cooperate with the licensed insolvency practitioner and provide information in a timely manner. The IP will then look into the directors' and if there has been very bad practice, misfeasance or fraud, they may become subject to a disqualification. What happens to the assets after liquidation? After the company has gone into liquidation the assets (if there are any!) are sold in order to pay back the creditors.  The Insolvency Practitioner will often employ a Chartered Surveyor to achieve the best price so they can't be accused of selling assets on the cheap.  Sometimes the directors can buy back the assets after liquidation but again they must be at a fair price. What happens to the debts after the liquidation? If the assets sold do not cover any or part of the debts then they are effectively written off.  However, if there are some monies to be distributed then the creditors are paid in accordance with their ranking.  See this page for the creditors ranking.   Generally in a liquidation the unsecured creditors get nothing. What happens to the shares after liquidation? The shareholders are the very last in line for getting any payout from the sale of assets.  So, basically the shares are worthless.  Any shareholder can write these losses off against tax. What are the implications for the directors after the liquidation?As a director, if you owe the company money, i.e. have an overdrawn directors loan account, then the liquidator will seek to claim this from you. If the loan is substantial and not justifiable, they will take action against you. Personal guarantees will be called in if applicable as lenders are unlikely to get all their money back. The liquidator will investigate your conduct, but as long as you have behaved reasonably and properly then there shouldn't be anything to worry about. Be aware that the use of Bounce Back Loans to fund personal spending over and above what would be expected in normal times could cause you problems. See this page for more information. You may find that gaining senior employment in sensitive government departments/insurance companies and banking will be a bit more difficult as you may need to go through a "vetting procedure."Can the directors start a new company after liquidating the old one? You can liquidate a company and start the same or a new business again, but only under strict rules and conditions. Restarting is a potential legal "minefield" and you need to take proper advice.In summary;Most importantly, you cannot use the same or similar trade or business name as the liquidated company without leave of the court or permission from the IP. HMRC will likely ask for a VAT deposit from the new company if they have been a significant creditor in the previous company. You may find that business insurance will be a bit more expensive, or less choice, for you in any new company.Call us or read our Experts Guide to Creditors Voluntary Liquidation (see link below) if you want more details. Likewise, call us on 0800 9700539 for a free chat through your company's issues.Why not download our 2022 voluntary liquidation guide?Additionally, if you would like to liquidate your company, call us on 0800 9700539 or you can fill out a form on our www.liquidatemycompany.com website and get a quote in minutes. We can talk you through the process, organise the legal paperwork and begin proceedings. What Happens In Compulsory Liquidation? A compulsory liquidation is when the company's creditors have lost all patience to try to collect the debt. The debt must be over £750, undisputed, and the creditor must have notified the debtor of its intent to collect the debt. This often involves issuing a statutory demand first. If the debtor fails to pay the Statutory Demand in 21 days and does not dispute the debt, then the creditor may issue a winding-up petition.If the judge grants the winding-up order, then the official receiver will interview the director and liquidate the assets of the business to try and repay the creditors. This process generally takes much longer than a voluntary liquidation and is more stressful and hassle for the directors involved. What is more, the official receiver has more resources and a willingness to use their powers to investigate the behaviour of the directors. They will also have more resources to pursue any money that the directors owe the company which could result in personal insolvency. Can I stop the process? Once a winding-up petition is issued then it is difficult to stop the process. The only way to stop the liquidation is to pay the debt or get the petitioner to agree to withdraw the petition. It may be possible to get an adjournment of the winding-up hearing to allow more time to find the funds or maybe even get a company voluntary arrangement organised, but you will need to move very quickly! What are the implications for the directors in a compulsory liquidation? As mentioned earlier, it is likely that the official receiver will more aggressively collect monies owed by the director to the company. The directors have to attend a lengthy interview process at the court. They also have more resources to use their powers to investigate the directors’ actions compared to a liquidator in a voluntary liquidation. What Happens In A Members Voluntary Liquidation? A Members Voluntary Liquidation (MVL) is the formal process to bring a solvent company to a close. It can be known a 'solvent liquidation'. A licensed insolvency practitioner is appointed as liquidator and will realise the company’s assets, settle any legal disputes and pay any outstanding creditors and then distribute the remaining surplus funds to the company’s shareholders/members. In a MVL, the company must have paid or be able to pay all of its creditors and contractual liabilities. Once the liquidator has completed these formalities and received clearance from HMRC, the company will be dissolved and formally removed from the companies register, meaning it will no longer be registered at companies house.An MVL requires 75% of shareholders who have been given notice of the meeting of members to pass the winding-up resolution.This type of liquidation is appropriate when a company plans to close or wants to reduce taxes.And now to some common questions, we hear: What is the process? Each type of liquidation has a similar yet unique approach. There are some basic steps that each liquidation involves:The appointment of an insolvency practitioner/liquidator Liquidation of the assets of the company. Creditors, in order of priority, are paid using the liquidated funds. Shareholders receive any extra cash once everyone else has been paid according to their priority.In most situations, the end result is the company ceasing to trade, thus being struck off the register at Companies House. How much time does it take? This is variable to each situation. Once the insolvency practitioner is appointed, it takes between 2 and 3 weeks for the company to be placed into liquidation.Remember:If you have received a statutory demand from a creditor, you only have 21 days to pay it, and if unable to be settled, a winding-up petition will be applied for by the creditor (since they have the right), which takes up to 2 weeks. Within 14 days of the winding-up petition, it is a legal requirement to conduct and engage in a winding-up hearing.Until the process is fully complete, the liquidator remains responsible in overseeing the process in its entirety. To find out more about the role of the liquidator, see our page here. How much does the process cost? The costs of liquidation can put directors off but not doing anything is likely to cost you more in the long run! Generally, the costs start at around £4000 + VAT. This would be for liquidating a company with a single creditor, such as having an unpaid Bounce Back Loan (BBL) or HMRC. For more than one creditor issue, we would expect the fee to be approximately £4,500 plus VAT. For more complex issues, including companies who have landlords, employees, BBLs and supplier debts we will provide a written quote after our meeting with the directors to discuss the company’s options. Do get in touch to discuss your company’s liquidation, don’t delay and hope the problem will go away! Liquidation is a highly regulated insolvency process and there are NO shortcuts. Who gets paid first after a company goes into liquidation? Employees If you are an employee of the business, you may not receive your last month's wages, but you will be able to claim from the redundancy payments office for arrears of pay, holiday pay, and money in lieu of notice. You are unlikely to receive any expenses that are owed to you. Please see our page for employees here. A creditor of the company Realistically, you are unlikely to receive much money in liquidation - maybe 5p in the £1. If you are a secured creditor, i.e. if you have a charge over the assets of the company, then you may receive more or even everything back, but it completely depends. For more information on who gets paid first in liquidation then see our page on creditors priority. 

"A man in the pub said I cannot be a director of any other company if I liquidate my company. Is this true?" Actually, this statement is entirely false! Misconceptions like this frequently arise from individuals with limited understanding of the subject matter. Such misinformation can cause undue anxiety for directors considering liquidation, fearing it might personally affect them. This failure to make a decision is really what could land you in trouble. ​​What Happens When a Company Goes Into Liquidation The liquidation process is designed to both protect creditors' interests and provide clarity for directors. A typical process looks like this:A licensed insolvency practitioner is appointed to oversee the entire procedure. They’ll be responsible for valuing and selling the company's assets, investigating its financial history, and distributing proceeds to creditors. All company assets are then reviewed, including physical equipment, property, intellectual property, and outstanding invoices. These assets are valued and sold to generate the maximum possible returns for creditors, with the goal to efficiently convert all company resources into cash. Next, creditors are formally notified and invited to submit their outstanding claims and the liquidator categorises and validates these claims. Secured creditors, preferential creditors, and unsecured creditors can then be paid accordingly. The company is formally dissolved, all bank accounts are closed, and the company is removed from the official business register.What Happens to a Director in Liquidation ​To minimise negative fallout, the key is to approach liquidation responsibly, work closely with a licensed insolvency practitioner, and act quickly.Your personal risk as a director rises the longer you delay taking action as, without a voluntary liquidation, creditors could force a compulsory liquidation. In this situation, the Official Receiver is appointed to liquidate the business and will investigate the activity of directors in the process - known as a conduct report. If they can prove there was wrongful trading, (for instance, you have taken credit from a supplier) then you could be made personally liable.This is known as the “lifting of the veil of incorporation” that protects directors under limited liability and it can make you liable for PAYE, VAT, and creditors monies. Additionally, the directors may face disqualification under the Company Directors Disqualification Act 1986 for up to 15 years, with the most severe consequences extending to the loss of personal assets like your home.All this means is that it is vital to protect yourself as a director by acting quickly to cease trading and put the company into voluntary liquidation, or consider a company voluntary arrangement if the company is viable. Can I be a director of a company after liquidation? Yes you can; contrary to popular belief, company liquidation does not permanently prevent you from being a company director. You can absolutely establish or join another company, with two key caveats: you must not have been disqualified as a director, and you must not be bankrupt.In most cases, directors can continue to manage and establish new companies following voluntary liquidation. Nonetheless, certain circumstances might trigger director disqualification, and failing to act appropriately could mean you face devastating personal consequences. This could arise from:Continuing to trade while the company can’t pay its debts Taking credit knowing repayment is impossible Neglecting proper financial record-keepingHowever, be aware that there are strict naming rules to consider - your new company cannot have a name that is the same or similar to the liquidated company. For more information on this read our page about starting a new company after liquidation. Can directors claim redundancy in liquidation? Yes, if you’ve been employed by the company and received payments through PAYE, you may be eligible to claim redundancy directly from the government. The process is surprisingly straightforward - typically taking around 20 minutes to complete a form. While some companies offer to handle this for you, be cautious of operators promising quick returns. The process has been open to fraud and, as a result, The government are increasingly cracking down on operators that claim to be able to get money back when there is not enough “paperwork”. It isn’t worth the risk and our advice is simple: if a redundancy claim assistance service sounds too good to be true, it probably is. The most secure route is to handle the claim yourself or seek guidance from a reputable insolvency expert. Can a director of a liquidated company get a mortgage? Mortgage lenders are primarily interested in your ability to make consistent payments over time. While losing a company salary might initially seem concerning, it won't necessarily prevent you from securing a mortgage. If you've secured a new job or established another business, a previous company liquidation shouldn't significantly impact lending decisions.However, lenders may become more cautious if you have a history of multiple liquidations. The type of liquidation matters significantly; a creditors voluntary liquidation is viewed far more favourably than a compulsory liquidation. Whilst a voluntary liquidation demonstrates proactive financial decision-making, which can reassure potential lenders about your financial reliability, a compulsory liquidation indicates that you left the decision too late. What if I have signed personal guarantees? Personal guarantees can be a significant concern for directors considering company liquidation. If you've signed personal guarantees or indemnities to lenders, these could be called in if the bank cannot recover its money from the company. While this might sound frightening, it's crucial to understand that delaying liquidation won't prevent these guarantees from being activated - and waiting could actually expose you to far greater financial risk.Since December 2020, HMRC now ranks ahead of floating charge holders in any liquidation, which can impact how lenders with personal guarantees recover their funds. This change means that your personal exposure could potentially increase, making prompt action even more important.The good news is that most banks are willing to negotiate repayment plans for personal guarantees, provided you actively work with them to reduce their exposure. One piece of advice is to always make sure that all tax returns, VAT returns and annual returns have been completed and sent in and that other “compliance” issues are dealt with wherever possible. These are important processes that help protect you as individual directors and demonstrate that you have been acting properly. What you should do You need to learn more about the options. This is clearly a general guide so if you have any worries at all, please just call us and we will talk you through the situation free and with expert guidance for your situation. Call one of our advisors or if you prefer, call our IPs (insolvency practitioners) now:Just one CALL will help relieve the stress and get you out of the mess.Why not call 08009700539 or 020 7887 2667 now?We could help you start the liquidation process today.(8.15am till 5.00pm; Out of hours call on 07833 240747, Wayne Harrison (IP)  or Eric Walls (IP) on 07787 278527)Finally, please remember this: NO BUSINESS is worth losing your health, relationships, marriages or your children over. Act properly, take advice, get the problem sorted and then get on with your life. In a little while, the stress will go and you can focus on other things that are more important.Want more information on liquidation? Get our new free 2024 Experts Complete Guide to Creditors Voluntary Liquidation that covers Bounce Back LoansWe are experts in liquidation, voluntary liquidation, administration, pre-pack administration, business rescue, corporate rescue and company rescue, We can help solve your problems, but only if you talk to us. Call 0800 9700539 for help.or email us your worries at help@ksagroup.co.uk 

A liquidation can be described as the "liquidating of assets" in order to release cash.  This cash can be used to pay off creditors in the event that the business is insolvent or it could be paid to shareholders/members of any company if there is a surplus.  Any liquidation of the assets of a business would mean that if a company owns the assets then it is also liquidated and its affairs come to an end.  Liquidation is not quite the same as selling all of the physical assets as a complete liquidation means selling the goodwill, orderbook, brand, debtors everything.If you want to liquidate your company then there are 2 main processes.For insolvent companies there is Creditors Voluntary Liquidation and for solvent companies, with surplus cash, there is Members Voluntary Liquidation Creditors Voluntary Liquidation Creditors Voluntary Liquidation (CVL) is a process that allows a company to be wound up voluntarily by its shareholders and creditors. It is a formal insolvency procedure that is initiated by the directors of a company when they believe that the company can no longer continue to trade profitably. The directors then call a meeting of the shareholders to obtain their approval for the liquidation, and a meeting of the creditors to appoint a liquidator.The process is called “creditors voluntary liquidation” because it is the creditors who ultimately decide whether the liquidation will go ahead or not. The creditors have the power to appoint the liquidator, who will then take control of the company’s affairs and liquidate its assets. The proceeds from the liquidation are used to pay off the company’s debts to its creditors in a prescribed order of priority. Members Voluntary Liquidation A Members' Voluntary Liquidation, or MVL, is a way for solvent companies that have hit the end of their useful life to close their business in a formal way. This usually happens when the company's directors no longer need it, either because they've retired or because they're starting something new and want to release cash for the new venture.The main benefit of an MVL is that it lets money be taken out in a way that is tax efficient. This is because money taken from a business through an MVL is treated as a capital gain instead of income, so it is taxed by the Capital Gains Tax instead of the Income Tax. As an added incentive, Business Asset Disposal Relief can be used, which, if you apply, will reduce CGT to just 10% up to a lifetime limit of £1m in gains.MVLs cost money, so companies that need to spread more than £25,000 are usually the only ones who can use them.If you are considering liquidating your business or company then there are a number of important steps to make sure of first.Do not sell any assets at below their market price Do not transfer any assets to another business or company Do not pay off one creditor before another because you desire them to be better off. Do not carry on trading if the position of the creditors is likely to get worse. Do not make people redundant if the business is insolvent.  A liquidator needs to do this and they will be compensated.