Speaking about what is liquidation, it is a process when a limited company is involuntarily or voluntarily announces its insolvency. A limited company insolvency means that a particular company is not able to pay its debts. After this, the assets of the company are sold to pay the shareholders and creditors. The process ends by effectively dissolving the limited company. No matter whether you have a public company or private company, liquidation is the only process to close down your business.
Liquidation and the available option
If you are a director of a company who wants to shut down or wind up the business, or is being forced to do that by the creditors due to some valid reasons, then you should understand the options.
Entering into the liquidation process means the company will not be allowed to trade, the staff will be redundant, and you will lose the value of the legal entity. On the other hand, if you are a director, you will not be allowed to use your power and can’t access the business’s bank account.
On the other hand, a licensed company insolvency officer will be appointed to deal with the creditors voluntary liquidation cost by organizing the liquidation of assets. The amount received from the sale will be distributed among the shareholders or claimants. Once done, the name of the limited company will be removed from the record of Companies House.
- Voluntary liquidation by members
Well, based on the situation, solvent business owners may want to liquidate the company to exit the company. And if the proposal receives approval from more than 75 percent of members of the company, then a professional liquidator will be appointed to carry out the process. The liquidator will sell the assets and settle the debts of the company. And the leftover money will be distributed among the member and shareholders.
- Compulsory liquidation
This will happen if the lenders or creditors file a petition to wind up the company as the company is unable to repay the debts. The creators can appoint a liquidator who will sell the assets and clear the debts of the creditors.
- Creditor’s voluntary liquidation
It occurs when the directors of the company realize that they don’t have sufficient funds to pay the debts. They will appoint a liquidator who will handle the process along with the legal disputes as well as debts.
Some advantages of business liquidation
- Liquidation of a business will bring all the business activities to an end in a legal as well as organized manner.
- If the particular business is under pressure, the business can be closed, and the creditors can appoint a professional insolvency practitioner to complete the process.
- Liquidation can remove the legal formalities and responsibilities from the directors or business owners.
- Once done, you don’t have to maintain your VAT accounts, and there is no need to file tax returns and annual accounts.
- In the case of employees, they will be allowed to make claims for any unpaid holiday pay, salary, redundancy from any government funds, and more. However, they need to follow the rules related to it.
- Liquidation requires very little cash flow as the appointed insolvency practitioners will take their fees from the amount recovered from the sale of business assets.
- If you are a director of the insolvency company, after the liquidation, you can go for other employment opportunities and can also establish a new company.
- This will remove the responsibilities of a director to handle the creditors.
Now you have a better understanding of what is liquidation, to make the process easier and comfortable, you should hire a professional liquidator.