I need to liquidate my company - what’s the process?

How do I liquidate my company? 

If you need to liquidate your company, the good news is that you don’t have to administer the procedure yourself. You can appoint a licensed Insolvency Practitioner to act as the liquidator and manage the process on your behalf. 

They will assume control of the company and take the necessary steps to wind up its affairs. That includes resolving ongoing contracts or legal disputes and valuing and selling the company’s assets. 

If the company is solvent, the liquidator will pay the proceeds from the sale of assets to the shareholders. If it’s insolvent, they will use the money to repay the company’s debts as far as possible. They then remove the business from the official register at Companies House and it will cease to exist. 

The Insolvency Practitioner charges a fee for liquidating the company, with insolvent liquidations typically costing more. The costs of liquidation are generally covered by the money raised from the sale of assets, so as a company director, you will not usually have to use your own funds. Directors in an insolvent liquidation may also be eligible for redundancy pay, which you can also put towards the liquidator’s fee.

What is the company liquidation process?

The solvent and insolvent liquidation processes are similar, but there are some crucial differences between them.

What is the process for a Members’ Voluntary Liquidation (MVL)?

If your company can afford to pay all its debts and has over £25,000 of physical assets or retained profits to return to the shareholders, a Members’ Voluntary Liquidation (MVL) is usually the most tax-efficient way to close it. Here’s how it works:

Step 1 - The directors must sign a sworn Declaration of Solvency confirming the company is solvent and can pay all its debts within 12 months.

Step 2 -  You must call a shareholders’ meeting to pass a resolution to wind up the company within five weeks of making the declaration. 75% of the shareholders must agree to liquidation to pass the resolution.

Step 3 - You appoint a licensed Insolvency Practitioner (IP) to act as the liquidator during the shareholders’ meeting.

Step 4 - Once appointed, the liquidator must advertise the resolution to wind up the company in the Gazette. They must place the notice within 14 days of the shareholders’ meeting. They must also send the signed Declaration of Solvency to Companies House. 

Step 5 - The liquidator will resolve any ongoing contracts or legal matters as efficiently as possible and value and sell the company’s assets. They will determine the best way to sell them to maximise their value. 

Step 6 - They will invite any creditors to make claims for the money they are owed and repay them in full from the proceeds of the sale of assets. 

Step 7 - The remaining funds will be distributed to the shareholders in proportion to their shareholding.  

Step 8 - The liquidator will remove the company from the official register to dissolve it.   

What is the process for a Creditors’ Voluntary Liquidation (CVL)?

If your company cannot afford to pay its debts when they are due or the value of its liabilities outweighs its assets, it is insolvent. If your company is insolvent, you must contact an Insolvency Practitioner for professional advice.

They will assess your financial position and explain your options to you. If the company has no realistic prospect of making a recovery, you can close it voluntarily using a Creditors’ Voluntary Liquidation.

Step 1 - You must call a board meeting to discuss the situation and the advice you have received from the Insolvency Practitioner. If you and your fellow directors decide a CVL is the best course of action, you must produce a Statement of Affairs outlining the company’s debts and assets.

Step 2 -  You can then call a shareholders’ meeting to pass a resolution to wind up the company. You need 75% of the shareholders to agree to the CVL. You must also appoint a licensed Insolvency Practitioner to liquidate the company.    

Step 3 - The liquidator must notify your creditors of the resolution to wind up and send them the Statement of Affairs. The creditors can object to the proposed liquidator and request a physical meeting if they feel it would be beneficial. If not enough creditor objections are received, the liquidator’s appointment is approved without a physical meeting.

Step 4 - The liquidator takes control of the company and starts the process of winding it up. They will make permanent employees redundant, settle any contracts or disputes, and identify and sell company assets. They will also seek to recover money owed to the business, such as unpaid customer invoices or overdrawn director loan accounts.  

Step 5 - The liquidator will invite claims from the creditors and pay them as far as possible in a strict order using the proceeds from the sale as assets.

Step 6 - The liquidator will investigate the reasons for the company’s failure and the conduct of the directors. The potential consequences if they find examples of director misconduct include fines, becoming personally liable for company debts and director disqualifications.

Step 7 - Ordinarily, any debts the company cannot repay will be written off. The exceptions are if you have signed a personal guarantee for the business’s borrowing, or you’re made personally liable due to unlawful conduct. 

Step 8 - The liquidator removes the business’s name from the Register of Companies and it ceases to exist.   

Liquidation is not always voluntary

Members’ Voluntary Liquidation and Creditors’ Voluntary Liquidation are voluntary procedures that you, as a company director, decide to initiate yourself. But that’s not the only way to enter liquidation.

If a creditor has tried and failed to get your company to settle a debt, it can issue a Winding Up Petition to pressure you to pay. If you still don’t pay what you owe, the court will decide whether to make a Winding Up Order to force the company into Compulsory Liquidation.  

In this case, the court will appoint an Official Receiver - the government’s version of an Insolvency Practitioner - to liquidate the business. The creditors will be repaid as far as possible from the sale of assets and the company will be dissolved.

Being liquidated in this way can be risky for the directors. That’s because your decisions and actions will come under closer scrutiny. That can lead to personal liability issues and other penalties if you did not meet your legal duties as a director or continued to trade when the business was insolvent.

How long does it take to liquidate a company?

There’s usually a couple of weeks between appointing an Insolvency Practitioner and it entering liquidation. The time to complete the process then varies depending on the size and complexity of your company and the number of assets it has to realise. 

However, as a rough guide, you can expect a Members’ Voluntary Liquidation of a relatively simple company to take three to six months, and a Creditors’ Voluntary Liquidation could take six months or more.

Can I liquidate my company and start again?

You can start a new business venture after a solvent or insolvent liquidation. The only exception is if you are bankrupt or are disqualified from acting as a director. 

However, there are a few things to consider:

• You cannot use the same or a similar name as the liquidated company for up to five years
• You may find it difficult to secure credit if the liquidated business was insolvent
• You may have to pay an HMRC security deposit if the liquidated company had unpaid tax debts

I need to liquidate my company - can you help?

At Real Business Rescue, our experienced team of licensed Insolvency Practitioners will assess your company’s circumstances, explain your options and guide you on the most appropriate course of action. We can also implement company rescue and liquidation procedures on your behalf and manage the process from start to finish. Please contact our team for a free consultation or arrange a meeting at one of our 100+ offices throughout the UK.