Liquidation

What is liquidation?

Liquidation can be either compulsory, where a court orders the liquidation of a company, or voluntary, where the company's directors or shareholders decide to wind up the company by implementing the following:

1. The Insolvency Act 1986: The liquidation process is governed by the Insolvency Act 1986 which sets out the procedures that must be followed and the priorities for settling the company's debts.

2. Company dissolved: Once the liquidation process is complete, the company's assets have been sold, and its debts have been settled, the company will be dissolved, and it will cease to exist as a legal entity.

Liquidation can have significant implications for the company's owners, directors, and employees, so it's essential to understand these implications before proceeding.

Is Liquidation the best option?

Whether or not a company liquidation is a good idea depends on the specific circumstances of the company. Liquidation should only be considered if the company is unable to pay its debts as they fall due and has no viable alternatives for continuing trading.

1. Fair distribution of assets to creditors: In some cases, a company liquidation can be the best option for settling your company's debts and distributing its assets. It allows for a fair and orderly distribution of assets to creditors.

2. Fresh start for directors: Liquidation can provide a fresh start for a company's owners, directors, and employees.

3. Significant consequences to liquidation: It's important to be aware that liquidation can also have significant negative consequences, including the loss of jobs, damage to your company's reputation, and personal liability for your company's directors.

4. Alternative options: If alternative options, such as a company voluntary arrangement or administration, are available, they may be a better option for your company and its creditors.

Before deciding to liquidate your company, it's essential to seek professional advice from an insolvency practitioner who specialises in liquidation. They will be able to assess your company's financial situation and advise on the best course of action. 

Compulsory Liquidation

Compulsory liquidation, also known as "winding-up by the court," is a process whereby a company is forced to liquidate its assets and cease its operations. It's usually initiated by a creditor who is owed a significant debt that the company cannot repay. 

The process is overseen by an official receiver, who is appointed by the court to take control of the company's affairs and sell its assets to repay its creditors.

Here is a step-by-step guide to how compulsory liquidation happens:

1. Statutory Demand: The first step in a compulsory liquidation is for the creditor to serve a statutory demand on the company. This is a formal demand for payment of a debt of at least £750, and the company must respond to the demand within 21 days.
   
   

2. Petition to Court: If the company fails to respond to the statutory demand, the creditor can apply to the court for a winding-up petition. This is a legal document that seeks to wind up the company and appoint a liquidator to sell its assets and distribute the proceeds to its creditors.
   
   

3. Court Hearing: If the court is satisfied that the company is unable to pay its debts, it may issue a winding-up order, which will result in the compulsory liquidation of the company. The court will also appoint an official receiver to act as liquidator.
   
   

4. Official Receiver Takes Control: Once the winding-up order has been issued, the official receiver will take control of the company's affairs. They will collect and sell the company's assets and use the proceeds to repay its creditors.

5. Liquidator Appointed: After the official receiver has taken control, the court may appoint a private liquidator to manage the liquidation process. The private liquidator will work to maximise the return to creditors by selling the company's assets and pursuing any outstanding debts.
   
   

6. Creditors Meeting: The liquidator will call a meeting of the company's creditors, at which they will be given the opportunity to approve the liquidator's fees and approve the distribution of any proceeds from the sale of the company's assets.
   
   

7. Closure: Once the liquidation process is complete, the company will be dissolved and removed from the Companies House register. Any remaining assets will be distributed to the company's creditors in accordance with the statutory order of priority.
   
   

It is important to note that compulsory liquidation is a serious matter and should be avoided if possible. Seeking professional advice from a licensed insolvency practitioner can be helpful in determining whether alternative options, such as company administration, may be available.

Liquidation Fees

The fees associated with liquidation (also known as winding up a company) can vary depending on the type of liquidation, the complexity of the case, and the professionals involved. Some of the common fees that may be incurred in a UK liquidation include:

• Insolvency practitioner's fees: These are fees charged by the licensed insolvency practitioner overseeing the liquidation process. The amount can vary, but a typical fee for a straightforward case is around £2,000 to £5,000.
  
  

• Disbursements: These are third-party costs incurred during the liquidation, such as court fees, advertising costs, and costs for preparing and distributing reports to creditors.
  
  

• Realisation costs: These are costs associated with selling the company's assets and realising its value, such as valuation fees and auctioneering fees.

It's important to note that the fees will vary based on the specific circumstances of the case and that the liquidation process can be complex, so it is recommended to seek professional advice from an insolvency practitioner or a licensed accountant.