What happens after a company liquidation and what are the implications for the Directors of the business that's been closed?
When a business is liquidated, be it solvent or insolvent, a formal process is followed, in which the business ceases to trade, every asset is sold and the resulting funds are used to pay any outstanding company debt. Once all debts are satisfied, any money leftover is distributed to the company’s shareholders.
While the process of liquidation is similar in most circumstances, there are three main types of liquidation process which largely depend upon the status of the business immediately prior to the liquidation and who initiated the process.
Creditors Voluntary Liquidation – CVL
In most circumstances, an unprofitable business which is insolvent and is unable to pay its debts chooses to close down voluntarily and will go into Creditor’s Voluntary Liquidation, or ‘CVL’
Shareholders must approve this option and pass a resolution to wind up the company and appoint a liquidator who will oversee the process. Creditors, who are likely to be paid less than they’re owed, must also be given the opportunity to approve the choice of liquidator, although in the absence of a response to the invitation, consent can be presumed.
The conduct of the directors and the affairs of the Company are examined by the liquidator. The CVL process ends with all assets being realised and funds from their sale being distributed in accordance with statute.
A compulsory liquidation is another insolvent company liquidation option and generally comes as a result of leaving debts unpaid for too long or the conduct of the company coming under official scrutiny.
In the certain circumstances, a creditor who has not been paid can apply to the court to wind up the company which has not paid what it owes. Certain Crown Authorities can also apply to the court in a similar manner if the company in question is giving them serious concern about the way it is operating.
If the court decides that winding up is appropriate the Official Receiver will take on the role of liquidator. Sometimes an external liquidator is appointed if enough creditors wish to appoint one or if the Official Receiver thinks that it is appropriate to do so.
Members Voluntary Liquidation (MVL)
A Member’s voluntary liquidation or ‘MVL’ is the voluntary closure of a solvent business. There are a variety of reasons why a company which is fully able to pay all its creditors might close, but the liquidation process is fairly similar to that of the CVL. However, with the company being able to satisfy all its financial obligations, there will be no creditors to consult, streamlining the process.
If the assets of a solvent company, once all debts have been paid, leave a surplus below £25,000, it’s possible that a liquidation can be avoided. The funds can be distributed to shareholders as capital and the company simply struck off, which can save costs and so increase the return to. Where surplus funds exceed £25,000 however, an MVL is the only way to proceed.
Speak to Lines Henry about Company Liquidation
No matter which form of company liquidation is appropriate for your business the sooner you seek help, the more options will be available and the better the outcome will be.
At Lines Henry, we have decades of experience helping businesses and individuals in financial difficulty to get the best outcome based on their circumstances and just as importantly, see an end to the stress, sleepless nights and worry that financial challenges can bring.
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