Receivership and Liquidation
There are three types of liquidation. If the company is insolvent it could enter into a
- Creditors Voluntary Liquidation
- Compulsory Liquidation. [Please phone us immediately if you have a compulsory winding up order due to be made against you, you must take control now]
- Members Voluntary Liquidation
[if the company is solvent (able to pay all creditors) but circumstances dictate that it should be wound up]
Creditors Voluntary Liquidation
This route is usually the last resort for a company, as it is insolvent and cannot continue trading [o desire to continue and no prospect of survival] and is the most common form of Liquidation in the UK.
With the assistance of an Insolvency Practitioner, directors would arrange meetings with the company members and creditors in order to wind the company up and appoint a Liquidator.
If the company had not already done so, it would now cease to trade. All assets of the company including any book debts would be realised and proceeds of these would fund the cost of the liquidation and any excess funds would be available as a dividend to creditors in the order of priority.
If the company has insufficient assets to cover the associated costs the Liquidator may require the directors to personally pay the costs. The level of these would be agreed between both parties prior to the Liquidator proceeding.
At the meeting of creditors, a report would be presented detailing the history of the company, its financial circumstances and why it has gone into Liquidation. Creditors would be given the opportunity to ask the directors questions and would then formally vote for the appointment of a Liquidator.
Compulsory Liquidation
This is a legal process by which a Liquidator is appointed by order of Court to wind-up a limited company and is usually commenced by a creditor such as HM Revenue & Customs.
A winding-up-petition (WUP) must not be ignored and you should immediately seek advice from an Insolvency Practitioner.
The bank account would usually be frozen as soon as the bank becomes aware of the WUP.
A winding up order would stop your company from trading and the Official Receiver (OR) will investigate its affairs. The OR would decide whether to call a meeting of creditors to consider the appointment of a Liquidator.
If it has not already done so the company would cease to trade on the granting of the winding-up order. All assets of the company, including book debts, would be realised and proceeds of these would fund the cost of the Liquidation. Any excess funds would be available as a dividend to creditors, payable in the order of priority.
Members Voluntary Liquidation
This provides a greater degree of certainty than a striking-off and can be a useful tool in re-structuring. The Insolvency Practitioner will manage the whole procedure and ongoing liability only lasts until dissolution, compared to twenty years in a striking-off.
This is the liquidation of a company, which is solvent, i.e. asset rich and can take place under the following circumstances:
- A breakdown in the relationship between directors and/or members
- Changes in the market which result in the company no longer being a viable business
- The members wish to " remove their investment from the company" and retire.
The directors would be required to produce a schedule of assets and liabilities known as a declaration of solvency. This document would state that all of the company’s debts would be paid in full within twelve months of the date of the liquidation.
In order to pass the resolutions to wind the company up and appoint a Liquidator the directors would pass resolutions at a Board meeting and the members would attend an Extraordinary General Meeting (EGM). At this point the company would cease trading if it had not already done so. All assets of the company including book debts would be realised and proceeds of these would fund the cost of the Liquidation. Any excess funds would be available as a dividend to creditors, payable in the order of priority. A dividend would be paid to members after the unsecured creditors had been paid in full plus interest. An MVL could enable members to extract their investment from a company in a coordinated manner in order to benefit from effective tax planning. A final meeting would be summoned by the Liquidator when their duties had been completed and the company would then be dissolved three months after the final meeting.
We understand that you may require guidance and encouragement to help you through these difficult times.
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