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What Does Liquidation mean for my Business?

In simplistic terms, if a business goes into liquidation it means:

  • The business stops trading with immediate effect
  • The employees are all made redundant
  • The assets of the business are sold to pay creditors

In order to liquidate a company, a licensed insolvency practitioner will be required. It usually takes around ten days to put a company into liquidation.

Find out more…

  • A Closer Look at Liquidation
  • How Long Does Creditors Voluntary Liquidation Take?
  • How Long Does Compulsory Liquidation Take?
  • The Liquidation Process
  • A Word Of Advice

A CLOSER LOOK AT LIQUIDATION

There are two types of insolvent liquidation. The first is a Creditors’ Voluntary Liquidation (CVL[1]) and is where the directors choose to put the company into liquidation. The second type of liquidation is where the company is pushed into liquidation by creditors at a Court hearing. This is known as Compulsory Liquidation.
In practice, directors usually try and avoid compulsory liquidation as the liquidator is appointed by the Court, which means they have less control of the situation.

HOW LONG DOES CREDITORS VOLUNTARY LIQUIDATION TAKE?

Creditors’ Voluntary Liquidation usually takes between one and two weeks to complete. A Creditors Voluntary Liquidation falls into three stages:

  • The majority of the company’s board sign a resolution to go into liquidation
  • Shareholders are then given notice of an extraordinary general meeting to approve this decision. 75% of the shareholders that vote at that meeting will need to agree to the liquidation. Those that don’t vote don’t count
  • Creditors are given notice of a separate meeting, to approve that the company will go into liquidation and to choose a liquidator. This meeting usually follows straight after the shareholders meeting on the same day

From the day the directors agree to liquidate, it takes around 14 days to put a company into creditors’ voluntary liquidation. If 90% or more of all shareholders agree to short notice, then the liquidation can happen within seven days (this is the minimum statutory notice period to creditors).

THE PURPOSE OF LIQUIDATION IS TO SELL THE ASSETS AND THEN PAY A RETURN TO CREDITORS SO THEY GET SOME OF THEIR MONEY BACK.

HOW LONG DOES IT TAKE?

A compulsory liquidation is a Court driven process. From the initial threat from creditors to start the process, it can take two or three months before the compulsory liquidation actually happens.
Stages:

  • A creditor usually serves a statutory demand that gives you 21 days to pay (or 18 days to set it that demand aside).
  • Once 21 days have expired the creditor can then apply to the Court for a Winding Up hearing to take place.
  • Depending on how busy the Court is, it can take a few weeks to get the hearing date.
  • The company to be liquidated must be given 14 days written notice of the hearing.

THE LIQUIDATION PROCESS

The purpose of liquidation is to get in, release all the assets and then pay a return to creditors so they get some of their money back.
All the company’s assets will be sold and they will no longer be able to trade. The liquidator deals with the sale of the assets, agreeing creditors’ claims and working out what return goes to creditors. This can take between three months to one year.
During this period, the liquidator has to send written annual reports to creditors, along with a final report explaining what has happened. The report includes details of what has been sold, for how much, how it has been paid and how much will be paid back to creditors. It also set out the liquidator’s fees and disbursements.

A WORD OF ADVICE

If you think the type of liquidation your business faces matters, think again as the problems and elements associated with compulsory liquidation include:

  • It is a slower process
  • There is no control after the event as to how assets are sold, and they cannot be bought back easily
  • The liquidator cannot be chosen
  • The government charges a 17% tax on all assets
  • [1] CVL’s are also known as a “section 98 liquidation” as it is based around section 98 of the Insolvency Act 1986.

LIQUIDATION – WE CAN HELP

Liquidation and whether it is a good or bad solution depends on your circumstances. You should always take professional advice before making a decision. For a free consultation or to talk to our insolvency experts contact us today.