Why would you liquidate your company?
There are three reasons why you would liquidate your company: you want to; it’s perceived to be the only option for addressing an escalating debt problem; it’s forced upon you.
While the common link between each of these reasons is the formal closure of your company, there is a fundamental difference between the first and last two: solvency and insolvency.
Whether your company is solvent or insolvent, the sole purpose of liquidation is to use its assets to pay creditors before it is closed down. It is a legal procedure which must be overseen by a Licensed Insolvency Practitioner (IP).
Whatever the reasons surrounding potential liquidation it is always wise to seek the early advice of an IP to make sure it is the best option for your individual circumstances. This is particularly true if you believe your company is insolvent, because closing your company down may not be the best or only option.
Three reasons why your company might be liquidated
So, let’s start with solvent liquidation, known as Members’ Voluntary Liquidation.
1. Members’ Voluntary Liquidation (MVL) is a tax-efficient, shareholder-driven process for directors who want to wind up their debt-free company for personal reasons. Perhaps the directors want to retire, sell off part of the business or it simply has no further purpose.
2. Creditors’ Voluntary Liquidation (CVL) may be the right solution for your company if debt problems are escalating, insolvency looms and the outlook for your company looks grim. CVL is an effective and straightforward director-led process, which gives you a greater degree of control over the process, creates a clean break and writes off all outstanding debts.
If, on the other hand, there is a realistic prospect that your company could get back on track, your IP may explore alternative options to give you valuable breathing space.
• A Company Voluntary Arrangement (CVA) is a formal agreement with creditors to pay back debt over a longer period of time. Historic debt is frozen, cash flow is eased and the company can continue to trade back into profitability.
• A Pre-Pack Administration offers protection from creditors while assets are sold and transferred into a new company. It allows the good bits to be preserved and trade to continue, which is invariably in the best interests of all parties.
3. The final reason your company may be liquidated – Compulsory Liquidation – is outside your control and by far the least favourable outcome.
Compulsory Liquidation is a court-led process instigated by creditors and overseen by an Official Receiver who may or may not involve an outside licensed IP to support the sale of assets and distribution to creditors. It usually really is the end of the line for the company, but can be preventable if you seek advice at an early enough stage.
We hope this blog has helped to clarify your options. Have you found it useful?