Liquidating a company – A step-by-step guide
Liquidating a company usually occurs when a company is no longer able to repay its creditors and involves it being closed down and removed from the company house register.
The process of liquidation can be instigated in two different ways, wither voluntarily entered into by the company’s directors or court ordered as a result of creditor action in response to unpaid debts.
Either way, an insolvency advisor will be able to guide you through the entire process, providing you with all the guidance and expert advice you need to emerge as healthily as possible from this difficult time.
Liquidation is often a shock, and not something that many people have or want to enter into more than once. For this reason, most are unaware of exactly how the process works.
This guide is designed to give you a brief rundown of the liquidation process, giving you all the crucial information that you need of what to expect:
What is the goal of liquidation?
The end result of liquidation is the winding up of a company and its removal from Companies House register.
This is normally achieved through the sale of assets to pay creditors what they are owed.
How does the liquidation process begin?
If you are reading this article, there is a good chance it already has. The first step along the liquidation process is the company directors identifying that the company is no longer financially viable and may need to be wound up.
There are many different reasons why this may be the case but if a company is no longer able to meet repayments and becomes insolvent, liquidation is often the only viable option.
A company does not need to become insolvent before liquidation, although most do, and if directors see the net closing in, they may choose to enter liquidation proceedings early to limit the damage done.
If you are at this stage where you are considering liquidation as a genuine option, it is time to speak to an insolvency expert who will be able to give you a run down of all the options available to you and advise on the best route forward.
What are the different types of liquidation?
There are several different types of liquidation processes that can be undertaken. Deciding between the following 3 options is the first major step in the liquidation process.
1) Members’ Voluntary liquidation
If a business is still solvent but the directors have decided that they no longer wish to operate it, they can file for members’ voluntary liquidation.
As there are no major debts to be repaid or court proceedings, this is the quickest liquidation process. The directors and shareholders will come to an agreement regarding the sale of the company and any profits will be split between shareholders once existing debts have been paid.
2) Creditors’ Voluntary Liquidation
If a company’s directors become aware that the company is insolvent they can go to the creditors and agree to voluntarily liquidate.
The sale of any assets in this liquidation process will be distributed among the creditors in lieu of payment for loans that the company still owed them.
Once this process is complete the company will cease to exist.
3) Compulsory Liquidation
Compulsory liquidation is a little different to the other forms of litigation, due to the fact that the process has been instigated against the will of the company directors.
If creditors have not been paid and have failed in their attempts to secure what they are due, they can ask the court to issue a winding up petition.
Should this be unsuccessful, a winding up order will then be issued, and the company will be removed from the hands of the directors.
The creditor will then be paid what they are due through the sale of the company’s assets.
It is the role of an appointed insolvency practitioner to oversee this process.
How long does it take?
The length of the Liquidating a Company can vary widely from a few weeks to 6-12 months depending on the nature of the situation.
Litigation cases will take a lot longer if there are legal disputes involved or assets that need to be sold, in comparison to voluntary liquidation.
The larger the company, the more complex the process will tend to be with multiple lawyers and creditors involved in attempting to find a solution.
Court dates can also take time to become available and the more cooperation and negotiation that takes place between directors, creditors, and other relevant parties the quicker a process this will be.
Having the right insolvency team to help you out is also key to resolving the liquidation process as quickly as possible and here at Oracle Law we have all the expertise and experience that you could possibly need.
For more information on our Insolvency and Corporate Recovery Service, and how to wind up your business as smoothly as possible, get in touch with us now on 0141 404 1091.