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What is liquidation?

Liquidation is the process of closing a company down that has become insolvent. The process is called a Creditors’ Voluntary Liquidation (CVL) or liquidation for short. Being insolvent means you cannot pay your debts when they fall due, or your liabilities are worth more than your business assets. If you suspect that your company may be becoming insolvent, you must seek professional advice early.

If you have become insolvent and the business has no hope of recovery, this voluntary process shows that you are adhering to your director’s duties and acting responsibly as a director. Seeking professional advice early shows that you are doing what you can to ensure that company creditors’ positions are not made any worse.

What is compulsory liquidation?

Another form of liquidation that is often best avoided, if possible, is compulsory liquidation. This form of liquidation is forced upon companies by their creditors who have tried to get the money they are owed and have not been successful.

You will be given a winding-up petition and a date to appear in court. If you fail to pay the company’s debts by this date, your company will be wound up and liquidated.

Compulsory liquidation can be very stressful as you will have little control over the process. Thankfully, a winding-up order can be avoided by seeking advice early from insolvency specialists. In compulsory liquidation, you will not be able to select your own appointed liquidator.

Sadly, sometimes this is the only option available for the director if there is no money to pay the liquidation fees. Even if this is you, please still make a call, and we will try our best to give you some good advice on what to do. We must warn you though…we are going to ask you to write us a review at the end of it, but even that bit isn’t compulsory!

What is solvent liquidation?

A solvent company can still enter a liquidation process, but this method is slightly different. It is known as a member’s voluntary liquidation (MVL). It involves setting time frames where all creditor debts can be settled before the company is closed and removed from the Companies House register. This may be a good option for your company if you can pay all your debt and still have over £25,000 in the bank. There are some decent tax breaks available when using an MVL. We can advise you on these.

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What happens during limited company liquidation?

Each of these liquidation types requires the appointment of a licensed insolvency practitioner. When you enter liquidation, you will take a step back, and the insolvency practitioner will take over. They will begin to close the company down and communicate with your company’s creditors.

Being a limited company provides you with more protection as a director when compared to sole traders, for example. Limited companies are covered by limited liability, which means that the business is a separate legal entity to you, the director. If no wrongdoing is found (such as wrongful trading or fraudulent trading) when closing a limited company, you should not be liable for company debts.

In some instances, you may be liable for company debts, and this is what we will help you understand. Directors can be made personally liable for things such as overdrawn directors loans, BBL or CBILS fraud and selling assets undervalue. We will help you understand your position in full before you make any decisions.

How long does company liquidation take?

You can get your papers signed in a matter of days, and from that point, the insolvency practitioner can take on the stress of dealing with your creditors.

The actual company liquidation process can take varying amounts of time, and it entirely depends on your situation. A straightforward liquidation with minimal creditors and no evidence of wrongdoing should be completed within a few months. However, larger liquidations with more debts involved can take longer.

Before appointing your insolvency practitioner, you should get all of the details in writing, including a projected timescale and liquidation costs. This can help to reduce the risk of issues further down the line for all company directors.

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How much to liquidate a company?

The cost of your liquidation depends on various factors, such as the size of your company and how many creditors you have. You can expect to pay anything between £4000 and £6000 plus VAT for a small liquidation. Larger insolvent companies can expect to pay more than this.

The thought of paying thousands for liquidation can be worrying, especially when you’re already in financial distress. The good news is that there are options available to you.

You could use company funds or company assets, or you may even be entitled to a director redundancy claim that could cover the cost of your liquidation.

How to close a limited company that never traded

Generally, closing a business that has never traded should be a simple process. After all, if you haven’t traded, then you should have no outstanding creditors and no debts. Those with no outstanding debts owed can consider using a strike-off method. You must also cease trading three months prior to starting the process.

A company dissolution is the cheapest way to close a company, but it is not suitable for all business types. The strike-off method does not require the appointment of a licensed insolvency practitioner and only costs £10.

I need help with liquidation and company closure

If you need support with liquidation, look no further. Our insolvency experts are here to support you with all aspects of your company. Get in touch today for free, confidential liquidation advice. 

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Chris Worden

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Getting support and advice.

Liquidation and company closure can be a minefield, so contact our friendly experts today for honest and confidential advice. We’re here to support you as the company director.

Don’t delay getting support and advice regarding your situation. You’ll have access to more solutions if you seek support from a business rescue expert sooner.