Liquidation-all you need to know

A guide to liquidation

A liquidation, also known as “winding up”, is the legal process that ends a limited company or partnership. It involves turning business assets into cash for the benefit of creditors or members in a business environment. There are three types of liquidations, and each one has various fees involved.

Types of liquidation;

• Members Voluntary Liquidation (MVL)

• Compulsory Liquidation (WUC)

• Creditors Voluntary Liquidation (CVL)

MVL and fees involved

A Members Voluntary Liquidation (often referred to as a solvent liquidation) is the winding down of a solvent company and distribution of its cash/assets to its shareholders in a tax efficient manner whilst making use of the reduced tax rate available under the entrepreneurs tax relief scheme. These liquidations can cost from £1,250 plus VAT and Disbursements in a straightforward case.

Compulsory liquidation and fees involved

Compulsory liquidation is the liquidation of a Company's assets following the petition to wind up the company by a director, shareholder, or more often than not a creditor who has not been paid. A creditor can petition to wind up a company for as little as a £1600 Petition Deposit plus £280 Court Fee.

CVL and fees involved

Creditors Voluntary Liquidation is the most common form of liquidation and is a liquidation of the Company's assets for the benefit of its creditors. The process is controlled by the director/members who appoint an Insolvency Practitioner to liquidate the Company. These can cost from as little as £2,500 plus VAT and Disbursements in a very straightforward case.

How does liquidation work?

The liquidation is managed and overseen by the official receiver (the creditor) or a certified insolvency practitioner. How a liquidation works depends on the type of liquidation;

CVL Process

• An Insolvency Practitioner is engaged

• The insolvency Practitioner produces the documents to formally place the company in to liquidation

• The insolvency practitioner notifies the creditors and deals with all creditor queries

• The Insolvency practitioner is appointed liquidator, notifies companies house, advertises the appointment in the london gazette and realises the assets for the creditors

• The insolvency practitioner produces annual reports updating the creditors and members of the progress made within the liquidation

• The insolvency practitioner pays any dividends to the creditors and closes the case

• The Company is then dissolved from Companies house 3 months later

MVL Process

• An Insolvency Practitioner is engaged

• The insolvency Practitioner produces the documents to formally place the company in to liquidation

• The directors swear a declaration of solvency

• The Insolvency practitioner is appointed liquidator, notifies companies house, advertises the appointment in the london gazette and realises the assets for the members

• The insolvency practitioner make a distribution of the assets realised to the members and seeks tax clearance from HMRC

• The Insolvency practitioner closes the case.

Compulsory Liquidation Process

• The Company is wound up by either creditor, director or shareholder

• The Company enters liquidation and the Official Receiver is appointed liquidator (except in few occasions when the Court appoints a liquidator direct)

• The Insolvency practitioner is appointed liquidator, notifies companies house, advertises the appointment in the London Gazette and realises the assets for the creditors