Voluntary Liquidation (voluntary winding up)
A company may choose a Members Voluntary Liquidation (MVL) to close or restructure if the company is solvent (can pay its debts within 12 months). Termed a solvent liquidation.
Compulsory Liquidation (compulsory winding up)
An insolvent company is placed into liquidation via a court order and closes via a Compulsory Liquidation (CL). A CL is an insolvent liquidation procedure.
Liquidation Process OverviewA liquidator (either the official receiver (an officer of the court) or a licensed insolvency practitioner) will administer the liquidation process. During the liquidation process the liquidator will take control of the business and ensure the following:
- Company trading ceases.
- Termination or transfer of any contracts (including employee).
- Settle any legal disputes.
- Gather money owed to the company.
- Liquidate assets and repay creditors accordingly.
- Pay liquidation costs.
- Remove the company from Companies House register and dissolve the company.
- Report upon director conduct and reasons for liquidation.
How long does Liquidation take?
The appointment of a liquidator in a creditors voluntary liquidation, which necessitates that the powers of the directors cease, normally takes 1 to 2 weeks.
Where more than 90% of shareholders of a limited company (95% for a PLC) agree to short notice, which in effect waives any notice they were entitled to, liquidation can occur within 7 days. This being the minimal statutory notice for creditors.
With compulsory liquidation, the period between the original threat and the end-of-court proceedings is generally 3 months.
In both instances though, this is purely the time it takes to place the company into liquidation. Once appointed the liquidators have to file the necessary paperwork, secure and sell any assets the company has, complete an investigation in respect of the company affairs and conduct, review and agree creditor claims and distribute available funds to creditors should funds permit. This can take 1-2 years or even longer. The larger the liquidation, the longer it takes (typically).
For a liquidation, there is no legal time limit. From start to end, it normally takes between 6 months to 2 years to finalise a liquidation of a company (depending upon the company’s position, the complexity and the form of liquidation).
Who can start a Liquidation?
- Instigated by Directors who hold a board meeting. The Directors have an obligations to produce and swear a declaration of solvency (this is statement of assets and liabilities)
- Requires Shareholders consent and for the requisite level of shareholders to pass the relevant resolutions at a subsequent general meeting
- Instigated by Directors who hold a board meeting to confirm that the Company cannot meet its impending liabilities.
- Requires Shareholders consent and for the requisite level shareholders to pass the relevant resolutions at a subsequent general meeting
- Creditors can look to change the members appointed Liquidator(s)
Started by the presentation of a winding up petition which can be presented by:
Can a Director start a new company after a Liquidation?
A Director can start a new company after liquidation and be its Director again. As long as the Director is not:
- Disqualified from taking part in the management of a limited company
- An undischarged bankrupt
- Subject to a debt relief order
- Subject to a bankruptcy or debt relief restriction
Can a Director / Employees make a redundancy claim in a Liquidation
- A Creditors’ Voluntary Liquidation and Compulsory Liquidation enable a Director and Employees to claim redundancy from the National Insurance Fund as the company is insolvent (eligibility criteria apply).