Many business owners look upon liquidation as a difficult and emotionally fraught process. Often, businesses are forced to close against the wishes of their executives, due to financial difficulties or problems with debt. This may be because closing the company is the only way to pay off the business’ debts, or because legal action from creditors pushes the business into compulsory liquidation.
However, there are also circumstances under which company directors decide that they wish to liquidate their company, not because of any financial difficulty, but simply because they no longer want to run the business. While selling the company may offer the biggest return, it is also possible to liquidate your own company through processes called members’ voluntary liquidation, or creditors’ voluntary liquidation.
Here, the experts at Company Insolvency Advice will explain the processes by which you can close down a business, the differences between how these processes work for solvent and insolvent businesses, and the alternatives you can explore if your business is facing debts or other financial challenges.
How can I liquidate my company myself?
Depending on the reason that you want to liquidate your company, there are several routes you can take. For a solvent company (meaning a business that can afford to repay its debts, with assets that exceed its liabilities) the most common approach is the members’ voluntary liquidation. We will explain this in more detail and discuss the members’ voluntary liquidation process below.
On the other hand, if you want to close down a company because it has debts that it cannot otherwise pay, or is facing other financial difficulties, a creditors’ voluntary liquidation will usually be the best way to achieve this. However, this is not always the best solution in these circumstances. In many cases, by applying the right solution, an insolvent company can be restored to good financial health and rescued from liquidation.
If you are concerned that your business will be unable to pay its debts when they are due, or you have other concerns about company finances, contact an expert advisor or licensed insolvency practitioner today. They can give advice on the company rescue solutions that might be suitable in your circumstances – this might include helping you get more time to repay creditors, recommending sources of finance, or resolving the cash flow problems that are responsible for your insolvency challenges.
How does the members’ voluntary liquidation process work?
A members’ voluntary liquidation is a way to close down a business that is solvent. There are many reasons why someone might want to shut down their own company, but provided the business is capable of paying any outstanding debts, you can use this mechanism to liquidate it.
Before the process begins, you must make a formal declaration of solvency. Then, you must call a shareholders’ meeting within five weeks to approve the proposal. You need support from the majority of the company’s directors in order to liquidate, and shareholders must also vote on the proposal before it can move ahead. Provided the proposal is approved, a liquidator can be appointed and the liquidation process can begin. This must also be announced in The Gazette, the UK’s official public record. Company directors will lose any control over the company once the liquidator is appointed.
After the company assets have been realised and the business liquidated, the liquidator will prepare a final report for shareholders, and advise Companies House that the business is closed. Within three months, the company will be formally dissolved in the view of Companies House and the process will be complete.
It is advisable to work with a professional insolvency practitioner during this process, as they can help to ensure that your company is financially solvent, and also act as the liquidator at this stage of the process.
There are several advantages to this approach. The first is that, under the right financial conditions, the liquidator you appoint may be able to make a distribution immediately. This means that you may not need to wait until company assets are realised to start benefiting from their value. You may also benefit from business asset disposal relief, meaning that a members’ voluntary liquidation is a tax-efficient way to close down your company.
How does a creditors’ voluntary liquidation work?
A creditors’ voluntary liquidation is suitable for a business that cannot afford to repay its debts. In this case, creditors know that they may not receive all of the money they are owed if the business is dissolved – instead, they may only receive a dividend. As a result, it is up to the creditors themselves as to whether or not they are satisfied with this proposal, or whether they wish to resolve the matter in another way.
An appointed insolvency practitioner will work with business directors to produce a proposal, and creditors will have the opportunity to approve this at a creditors’ meeting. Should they do so, they can also appoint the insolvency practitioner as liquidator and the process can begin. When a company cannot afford to pay all its debts, dividends from the liquidation are distributed in order of priority – first to secured creditors, then to preferential creditors, and so on. As with a members’ voluntary liquidation, as soon as the liquidator is appointed, the company directors no longer have any control over the business and are free to move on to new ventures.
If you need professional support to liquidate a solvent company, or to rescue a business from insolvency and restore it to financial health, get in touch with the licensed insolvency practitioners at Company Insolvency Advice today. We have significant expertise in supporting company directors to rescue their organisations from debt, and in closing down solvent companies in a way that delivers the best outcome for all parties.