Company Liquidation Procedure

If you are thinking about Liquidation, it is worth discussing the Company Liquidation Procedure with an Insolvency Practitioner.

What is the Company Liquidation Procedure

Company liquidation procedures will vary depending on the company’s situation, for example if the company is solvent or not, or has assets. Liquidation procedures are different for different types of liquidation, for example Compulsory Liquidation, procedures are set in motion by the creditors the company owes money to, however in Members Voluntary Liquidation it is a choice by directors and shareholders whether to start Liquidation proceedings. The initiation of Liquidation proceedings vary depending on the type of liquidation your company is going through. To get an ideal about the process of liquidation it is important to understand the different types of liquidation. There are a few different options for Liquidation but essentially it comes down to 2 main types of Liquidation, these are:


Members Voluntary Liquidation

Members Voluntary Liquidation is when the directors and shareholders petition to liquidate the company. If a company is solvent but still wants to wind up then a Members Voluntary Liquidation (MVL) can be petitioned. The company has to prove to the Court that they are not insolvent and are not trying to avoid paying creditors.


Compulsory Liquidation and Creditors Voluntary Liquidation

Compulsory liquidation procedures are usually started by creditors who are owed at least £750, it can be a petition to the high court or a district registrar and local court. If a creditor believes the company is insolvent or cannot pay its debts then they will petition to the courts for the company to be liquidated, in the UK the most common creditor is the HMRC as they will start proceedings if you owe Tax and/or VAT. Creditors Voluntary Liquidation is often misunderstood, as people assume that creditors initiate this, however it is actually a process started by the directors when the company is insolvent and they need to pay off creditors. The directors’ roles during the Liquidation process is different if the liquidation is voluntary or involuntary.


Company Liquidation Procedure

Before the Court is petitioned the directors or creditors must appoint a solicitor or Insolvency Practitioner topresent the petition to the court, they will get to this decision through meetings and discussions over the company’s solvency and any debts that are unmanageable. If the liquidation is voluntary then the directors will petition the court via an IP, e only time directors will be petitioning the Court is for a voluntary liquidation. It is important to follow the correct procedure and use someone who is licensed to do this as the laws are very strict and set forth in the Insolvency Act of 1986. Adverts must be placed in the London Gazette to announce the upcoming insolvency and Liquidation of a company, this is to notify and creditors that have not been made aware, you can also use the Insolvency service website. It is important to appoint an Insolvency Practitioner to put your petition to the court and work in your best interests. The liquidation process is very fast once you have appointed an IP:

    • Advert is placed in the Gazette within a 14 day time frame.
    • Within 14 days of the resolution, a Creditors meeting is held
    • Creditors MUST be notified at least 7 days prior to the meeting
    • Statement of affairs prepared by directors to be presented at meeting

Once an Insolvency Practitioner has been appointed to Liquidate the company the directors and creditors must cooperate and all information and debts must be disclosed.