Are you thinking about liquidating your company? If your business is struggling to pay its debts, or you’re worried about your company’s future, you might be exploring ways of winding it up. If this is the case, you’ll probably have heard the term ‘liquidation’ flying around. Here, we explore what liquidation is and how you can go about liquidating your company.
Does my company need to be insolvent to enter liquidation?
Simply put, your business can enter liquidation if you are both solvent or insolvent. Being insolvent means your company is unable to pay off its debts. It’s worth noting that being solvent or insolvent will impact what type of liquidation you enter.
There are three main types of liquidation:
- Members’ voluntary liquidation (MVL)
- Creditors’ voluntary liquidation (CVL)
- Compulsory liquidation
Whatever type of liquidation your business enters, it is always best to contact a professional insolvency practitioner to ensure the process runs as smoothly as possible.
What is Members’ Voluntary Liquidation (MVL)?
If a company is solvent – in other words, making a profit and able to pay creditors – but its directors want to wind it up, they might choose to enter Members’ Voluntary Liquidation (MVL).
This process is probably the simplest of the three and tends to take around three to six months in total.
If this sounds familiar, then here are the steps you should take to enter MVL:
- Directors kick off the process by realising they want to enter voluntary liquidation
- A professional insolvency practitioner will be appointed to manage the company’s assets
- The company’s assets will then be sold, with any outstanding credit paid off
- Any money that is left over is then divided between shareholders
- All creditors and employees must be made aware of the liquidation, with a formal announcement made in The Gazette
- The process ends when the company is finally wound up. At this point, it will no longer exist and will be struck off the Company House register
What is creditors’ voluntary liquidation (CVL)
This process is very similar to MVL, except, in this case, the company is insolvent – which means it cannot pay its debts. If your company can’t afford to pay creditors, you should consider Creditors’ Voluntary Liquidation (CVL).
In cases like this – similarly to entering a MVL – a professional insolvency practitioner will be hired to oversee the procedure. However, the assets will be sold off to pay as much debt as possible before the company is wound up, dissolved, and taken off the Companies House register.
What is compulsory liquidation?
Compulsory liquidation is when creditors (who haven’t received an owed payment from a company) want to liquidate a business.
This process involves creditors making an official court order application in the hope of enforcing a winding-up petition. If successful, the directors will lose control of the company and eventually be liquidated and removed from the Companies House register. This procedure tends to be managed by a professional insolvency practitioner or the Government Official Receiver.
Is your company facing liquidation?
If you believe your company is facing liquidation, then liquidation specialists, FA Simms, can help. We appreciate and recognise just how challenging the liquidation process can be for your business. For understanding advice and support, get in touch.
