Businesses often aim to grow, maximize their profitability and prosper. However, in some cases, they might be forced to wind up operations. This process is referred to as liquidation. It is an activity wherein the assets of the business are sold to generate funds. These funds are then used to settle existing debts and pay off creditors. Thus, it is crucial that you get in touch with a professional insolvency expert to discuss your options to liquidate the company and whether liquidation would work for you.
What are the options for liquidating a company?
Liquidation is a formal process to close a limited company. Once a company is knowingly insolvent, meaning it is no longer able to service its outgoings and debt liabilities as and when they fall due, the company may need to be placed into liquidation.
There are three main types of liquidation, and while all seek to achieve the same end result, that is the formal closure of the company, each process is distinct. The procedure used to place your company into liquidation depends mainly on its financial position at the time of entry into liquidation. Depending on the specific situation, your ideal company liquidation process may vary.
As a business owner or entrepreneur, you control the liquidation process as It’s your responsibility to choose the appropriate type of liquidation for your company.
-
Creditors’ Voluntary Liquidation (CVL)
CVL is a formal insolvency procedure used to close an insolvent company. If company debts have become unmanageable, liabilities cannot be paid, and you know the business cannot continue to trade, you may want to put an end to things and close the company.
The process is instigated by the directors and enables the company’s insolvency to be dealt with quickly. A CVL will see the whole company liquidated, with the realization of any assets used to maximize a return to creditors. Any remaining debts will die with the company.
The following are some of the benefits a CVL offers:
- Directors or shareholders may be able to purchase the assets after liquidation, continuing the business in a new limited company.
- Gives directors more control over the business’ closure.
- Reduces the risk of wrongful trading.
- Laid-off employees are entitled to redundancy payments via the Redundancy Payments Office.
-
Members Voluntary Liquidation (MVL)
A Members Voluntary Liquidation is the liquidation of a company that is solvent. A company is solvent by definition if it has assets sufficient enough to settle all liabilities in full, plus statutory interest within a given period of less than 12 months.
The director’s decision to instigate an MVL is generally because the company has no further purpose and is a tax-efficient way of distributing its assets and profits to the shareholders.
An MVL can only be used when a company is still solvent and able to meet any contractual obligations and/or debts, and clear any legal disputes. The company’s affairs must be in order and all documents must be ready for the insolvency practitioner when the MVL proceedings start.
There are many benefits of an MVL for limited companies. These include:
- Members’ Voluntary Liquidation can be done quickly.
- Huge tax advantages to shareholders.
- Ensures the company is closed appropriately by an independent Liquidator.
- The Liquidator has the power to deal with any problematic creditor claims.
- Shareholders may be in a position to receive distributions quickly.
-
Compulsory liquidation
Compulsory liquidation is the most serious insolvency procedure that an insolvent company may find itself in. It occurs when a winding-up petition is issued against the company (usually by a creditor of the company) and a winding-up order is issued by the courts, who then appoint a liquidator (either an ‘official receiver’ or insolvency practitioner) to begin the involuntary liquidation of the company.
A compulsory liquidation is instigated by creditors who are looking to recover their debts. Compulsory liquidation comes as the final stage of a winding-up petition. This is the most serious action a creditor can take to recover their debts and usually comes after they have exhausted all other means of recovery action.
Company closure can be the result of numerous different circumstances and ultimately becomes a voluntary or compulsory process.
Whether a creditor is forcing your company into liquidation or you have chosen to wind-up your company affairs, “Consortio Law Firm” expert team can help providing you how to liquidate the company with the best option you have and advise on the best way forward.
We can help you to successfully liquidate your company if this is the best option for your business.
Contact us Now via the phone number 002 01028806061 or via WhatsApp or email Info@consortiolawfirm.com.