Liquidating a company is, in most cases, a final process that’s irreversible. Whether you’re forced into it due to financial difficulties, or you choose to liquidate as a way of shutting down your business, it’s a serious procedure that you want to get just right.
If you’re a business owner that faces liquidation in the near future, then there are definitely some things that you need to know. Let’s take a look at some key points, from types of liquidation to the role of insolvency practitioners.
What is liquidation?
Liquidation refers to the process of selling off a company’s assets. As part of that process, the business will also formally stop trading, and be struck off the government register at Companies House. In most cases, it’s not a process that can be reversed – it marks the end of that company, no matter what the reasons were behind the closure.
What kinds of liquidation are there?
Liquidations can be put into two quite broad brackets – voluntary and compulsory. The main difference between these two processes is that with voluntary liquidations, directors maintain a degree of control, as the liquidation is not controlled by the courts. With compulsory liquidations on the other hand, shareholders or creditors will typically use the courts to force the company to stop trading and pay off its debts.
In many cases, companies that find themselves going through a liquidation process will be insolvent. Essentially, this means that the company is no longer able to pay its debts owed, and it is unlikely that it will be able to do so anytime soon.
In the case of an MVL (members voluntary liquidation) the company will not be insolvent. Instead, business owners might choose this as an option to wind down their company if they no longer want to run the business any more, and don’t want or are unable to find someone else to run the business in their place.
The role of a liquidator
In most liquidation scenarios, it will be necessary to appoint a professional liquidator, known as an insolvency practitioner. While they can be found through businesses such as Chamberlain & Co, they will typically operate on an individual basis.
Insolvency practitioners are responsible for ensuring that all of the assets are sold off, and that all of the proceeds are distributed according to the order of legal priority.
Whether your business is facing financial difficulties or not, it’s important to look into alternative solutions to liquidation. It will likely be necessary to seek the advice of an insolvency practitioner, to see if continuing to operate could leave you liable to legal action. Some alternative solutions might include seeking alternative forms of financing or going into administration.
Companies that find themselves going through a liquidation process will likely be in a difficult situation. As a business owner, it’s imperative that you get the right advice as soon as possible, to ensure that you don’t make things any worse.