It’s a sad reality that in the coming months, as government support schemes for businesses wind down, we are likely to see a high number of companies going into liquidation. On occasion, this can be a planned, natural end to a business, but most often it’s forced on the directors by economic reality. So what exactly does liquidation involve?
Solvent Liquidation
There are sometimes reasons for winding up a company that have nothing to do with being in difficulties. Perhaps it no longer serves its original purpose, or a director may be retiring. In this case, the company can enter into a Members’ Voluntary Liquidation (MVL).
This requires the company to issue a Declaration of Solvency, and at this point all creditors should be paid in full. The shareholders then pass a resolution to wind up the business, not more than five weeks later, and an Insolvency Practitioner should be appointed (in spite of the liquidation not involving insolvency).
You must then place a notice in the Gazette and send the signed Declaration of Solvency to Companies House, within fourteen and fifteen days respectively.
Insolvent Liquidation
If the company is insolvent, the liquidation can be either a Creditors’ Voluntary Liquidation (CVL) or a Compulsory Liquidation.
A CVL, while for the benefit of the creditors, is initiated by the shareholders voting to take the measure. This normally happens when creditors are threatening legal action and there seems no prospect of recovery.
The notice is placed in the Gazette, as above, and the winding-up decision is sent to Companies House within fifteen days. A liquidator is appointed, who’ll realise the company’s assets and distribute funds among the creditors, as well as investigating directors’ conduct in case of any wrongful or illegal trading.
A Compulsory Liquidation, on the other hand, is initiated by one or more creditors. Any creditor who’s owed more than £750 can apply to the court to have the company wound up. If this is granted, the court appoints a liquidator, who’ll do their best to realise as much as possible for the creditors.
What Is the Role of the Liquidator?
A liquidator may be appointed by various parties, from the shareholders to the court, but their role is realise whatever the company’s assets might be and distribute the money to those entitled to it.
In addition, the liquidator’s role may include dealing with outstanding contracts and keeping creditors fully informed, as well as investigating the actions of the company’s directors. The liquidator will also be responsible for the company being finally removed from the Companies House lists, normally three months after the liquidation has been concluded, and the final return has been filed by the liquidator
If you’re a creditor who’s starting to suspect that liquidation may be the only way you’re going to get paid by your debtor, please get in touch with me for a chat about your options.
