Reviewed: 29th March 2016
How a limited company is liquidated depends on whether or not it is able to pay all its creditors. The business is classed as solvent if all debts can be paid within a maximum period of 12 months, and the total of assets is greater than the liabilities. If this is the case with your company, a Members’ Voluntary Liquidation (MVL) is likely to be the right option.
An insolvent company needs to stop trading immediately, and will go down the route of a Creditors’ Voluntary Liquidation (CVL). Both processes have statutory procedures that must be followed, however, and need to be administered by a licensed insolvency practitioner.
Let’s have a look at the eligibility criteria and procedures in a little more detail.
The first aspect to consider before embarking on an MVL is whether the business is actually solvent. This is a crucial point, as if it’s later found to be insolvent, you could be held personally liable for the company’s debts.
The insolvency practitioner will assist directors in the preparation of a Declaration of Solvency. This includes a statement of company assets and liabilities, and asserts that the business can pay its debts within a 12-month period from the date of entering the MVL.
Debts have to include contingent liabilities which might become due in the future, and that potentially depend on a court’s decision.
A meeting of members is called by the liquidator, during which a resolution is passed to wind-up the company. A notice must then be placed in the Gazette within 14 days, which advertises your intentions to close down, and allows all creditors to come forward with their claims.
Once appointed, the liquidator takes over control of the company, realises all the assets and distributes proceeds among the shareholders. In general, it takes around three months from starting the MVL process for shareholders to receive a proportion of the funds – usually around 75% - with the remaining monies often taking another couple of months to be paid.
This delay in the final payment is generally due to HMRC’s processing of the case in their records, but the time taken for the bank to release funds is also an influence.
If creditors have forced you into what seems like an untenable financial position, and you feel that trading your way out of difficulty is not an option, you may be able to go down the route of a Creditors’ Voluntary Liquidation (CVL).
Taking this option offers the added advantage of helping to retain your reputation as a director, as it places creditor interests first.
Directors often choose Creditors’ Voluntary Liquidation to avoid compulsory liquidation proceedings being taken against them. A CVL also reduces the likelihood of your conduct as a director being investigated, leading up to the insolvency.
During a meeting of shareholders, a resolution is passed in favour of voluntary liquidation. This is closely followed by a creditors’ meeting, at which a statement of affairs is presented by the liquidator. This document outlines why the company has reached an insolvent position, and provides supporting facts and figures.
It takes a few weeks, on average, to place a company into Creditors’ Voluntary Liquidation. Completion time varies depending on the complexity of each business, but a CVL generally comes to an end within 12 months.
If your company owes money and you don’t know which way to turn, Real Business Rescue can help. Our team offers professional, independent guidance to find the best solution, and has 55 offices nationwide.
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