How to Liquidate my Company
There are 2 ways a company can go into liquidation. The first and most common way is voluntarily, by the directors and shareholders – this is known as a Creditors’ Voluntary Liquidation (CVL). The second way is a compulsory liquidation and is when a creditor or shareholder files a petition at court to wind the company up.
This article focuses on the voluntary liquidation process and provides a guide for directors who might be considering this option.
The Key Aspects of a Voluntary Liquidation
A company can be taken into Creditors’ Voluntary Liquidation (CVL) by the directors calling a meeting of the shareholders to pass the necessary resolutions to appoint a Liquidator. The Liquidator is an insolvency practitioner nominated by the directors and with whom they will have been discussing the situation and taking advice. Creditors cannot intervene to stop the company going into voluntary liquidation, however they can influence the choice of Liquidator and the level of fees proposed to be charged by the appointed Liquidator.
When a company goes into CVL the directors’ powers cease (although they remain directors) and the responsibility for dealing with the company falls to the Liquidator. A CVL effectively ends the life of the company and, if it hasn’t already done so, the company would cease trading once a Liquidator is appointed. The effect of liquidation is that the company, and its assets, are protected from any further recovery action by creditors.
The main duties of the Liquidator are to:
- Recover and/or sell any remaining assets of the company (cash, debtors, equipment, property etc)
- Investigate the causes of the company’s insolvency and report on the conduct of the directors
- Pay a dividend to creditors (if sufficient funds are available)
Once the Liquidator completes their work (usually within 12-18 months) the liquidation is closed the shortly afterwards the company will be dissolved at Companies House.
The 5 key steps to take a company into CVL:
The company discusses matters with an Insolvency Practitioner. All options are considered so that the directors can make a decision over the best route. If a CVL is the best route, the directors are advised of the dos and don’ts, prior to placing a company into CVL.
The directors formally engage the Insolvency Practitioner firm to assist with all the necessary steps to place the company into CVL. Information on the company will need to be collected including its accounts, books & records, bank statements, payroll records and any other trading information. A Statement of Affairs and Directors’ Report will be produced, which is signed by the directors before being sent out to creditors.
A meeting of shareholders is called and held, with resolutions proposing to place the company into liquidation and to appoint a liquidator – this is usually a face-to-face meeting (although shareholders can vote via proxy if they wish) and requires 75% of voting shareholders to approve the resolutions.
Creditors are then required to vote to approve the appointment of liquidator and the fees/expenses to be charged. There is no requirement to hold a physical meeting of creditors, but instead creditors are invited to dial in to a “virtual meeting”. This meeting usually takes place shortly after the shareholders have met.
Once appointed, the liquidator takes control of the company. Assets are liquidated and the affairs of the company leading up to the liquidation are investigated and reported upon.
If there are sufficient funds in the liquidation (from company assets) then the liquidator will make a distribution to creditors in accordance with the following payment hierarchy: How Creditors are Paid in a Liquidation.
Once all action are completed the liquidation is closed with a final report sent to Companies House, after which the company will be dissolved.