Liquidation most often occurs when a company is no longer able to pay its obligations, sometimes at the result of bankruptcy. If the company is unable to pay its debts but insists on continuing, it may be forced into liquidation. Liquidation may be the best option if the directors would like to limit their personal liability in closing the business. When a limited company is placed into liquidation, none of its shareholders nor directors are personally liable for the company’s debts, unless they are personally guaranteed. Creditors also may not take legal action against the company or its directors.
3 Types of Liquidation:
- Creditors’ voluntary liquidation occurs when the company can no longer pay its debts and the creditors are involved in the liquidation process. First, 75% of the shareholders must agree to liquidate. An authorised insolvency practitioner must then be appointed liquidator, a resolution must be sent to the Companies House within 15 days, and the resolution must be advertised in The Gazette. Then, the directors must hold a meeting with the creditors, where another director, the liquidator, and the company secretary must be present. A statement of affairs will be presented, which will be sent to the Companies House.
- Compulsory liquidation occurs when the company can no longer pay its debts and the courts are applied to liquidate it. The company must submit a winding-up petition to the court, which includes a statement of truth, as well as the winding-up resolution from the shareholders. The director then can directly ask the court to order the company to stop trading, and he or she must show that the company cannot pay a debt of greater than 750 pounds, and that 75% of shareholders have agreed to liquidate. However, no evidence must be presented. If the court agrees, they will appoint an official receiver to oversee the liquidation.
- Members’ voluntary liquidation occurs when the company can pay its debts but the owners decide that they want to close the company anyway. This may occur if the directors would like to retire, step down from a family business without other successors, or simply stop running the business. The director must file a Declaration of Solvency, appoint an authorised insolvency practitioner as liquidator, advertise the resolution in the Gazette, and send the form to the Companies House.
The Liquidation Process
In the case of liquidation, the company will no longer do business and employing people. The purpose of liquidation is that the company’s assets are sold or used to pay off the company’s debts. Any remaining money will be distributed to the company’s shareholders. However, if the money is not distributed by the time the company is removed from the register at the Companies House, the money will go to the UK government. If the shareholders would like to reclaim the money, they must restore the company.
“Liquidate Your Limited Company.” Gov.uk. Government Digital Services. Web.
“Liquidation for Companies in the UK.” Findlay James Insolvency. Company Liquidation, n.d.