The liquidation of a company may be necessary for insolvent businesses that can no longer continue trading profitably. In the UK, liquidation is a common procedure with thousands being completed every year. You can read our very quick guide below, or continue reading for more detailed information on the processes involved.
A very quick guide to liquidation
- A majority of the directors decide to liquidate first.
- Then the shareholders meet after at least 14 days’ notice and decide. 75% of shareholders must agree (only the ones that vote count).
- Then, the creditors decide usually immediately after that.
- It can take up to 14 days to get into liquidation unless shareholders waive the full notice period – If this happens, the whole process can be shortened to 7 days.
- Once in liquidation the directors control of the company ends and the liquidator takes over on all matters.
A very detailed guide
In the UK, a Creditor’s Voluntary Liquidation (“CVL”) usually takes between 7 and 14 days. Confusingly, a CVL actually means the directors decide to liquidate as the creditors only decide later.
Creditors are entitled to at least 7 days’ notice and shareholders are entitled to 14 days’ notice. However, if 90% of the shareholders agree in writing to short notice then you can call the shareholders meeting sooner than 14 days and normally you chose the same day as the creditors virtual meeting.
Since April 2017 creditors no longer have a physical meeting (because creditors rarely turned up) so now have a virtual meeting – attended by video or telephone to make it easier. Directors don’t even need to have the meeting at all if the directors chose ‘deemed consent’.
Deemed consent means if the day of liquidation passes without objection then the company is in liquidation.
The liquidation procedure (called a Creditor’s Voluntary Liquidation) is as follows:
Before the creditors and shareholders find out
- A Licensed Insolvency Practitioner meets the directors and makes sure that liquidation is the best option. We make this assessment by considering the total creditors, assets, ongoing profitability (or not) and whether or not the directors want to carry on.
- A director’s board meeting is then held to consider the liquidation. A majority of the directors must agree to decide on liquidation. We prepare the paperwork for the board resolutions. At this stage a decision needs to be made if there will be a virtual creditors meeting or none at all (called deemed consent).
- We, as the Insolvency Practitioner prepare all the paperwork including the statutory notice to creditors and shareholders whom the director (nominated as chairman) must sign.
After this point creditors and shareholders are informed of the impending liquidation
- These notices will have the date and venue of the shareholders meeting (held first) then the creditors virtual meeting (held second).
- The Insolvency Practitioner posts or emails out these notices to all the creditors and shareholders.
- In the meantime, normally the company and business will be closed down. This means staff are laid off (see 7 below) and the company premises are closed down and secured. An auctioneer may be called in to remove assets.
- Staff are made redundant and given their employee claim forms. They can make a claim from the UK Government for unpaid wages, holiday pay, notice pay and redundancy.
- The Insolvency Practitioner helps the directors prepare a report to creditors (called a ‘SIP6 report’ after Statement of Insolvency Practice 6) which includes; a list of all creditors, shareholders, assets and liabilities, annual accounts summary and a business history. This report can be published online three business days before the creditors meeting or posted out to creditors.
- A statement of affairs has to be posted out to creditors three business days before the virtual or deemed meeting so it arrives a business day before the meeting. This is a summary of the assets, liabilities, expected recoveries and likely shortfall to creditors because of the insolvency.
- If creditors want a physical meeting, so they can question the directors, then they can ask for one. The requirement to insist on a physical meeting is either:
- 10% of all creditors by value ask for it.
- Just 10 creditors.
- Or 10% of all creditors by number (so for example if there are 30 creditors then at least 3 = 10%).
- The shareholders’ meeting is held on the agreed date and resolutions passed to put the company into liquidation. Only those shareholders who attend to vote (or vote by post called a proxy vote) count for the vote. At least 75% of shareholders need to pass the resolution. Sometimes the company Articles (the rules of the company) mean at least two shareholders are needed to vote to make a quorum.
- Then the creditors’ virtual meeting is held or the deemed consent meeting (where there is no creditors meeting at all). At this virtual meeting a director will be chairman and answer any reasonable questions from creditors by telephone or video conference facilities. A resolution is passed agreeing to the liquidation and who will be liquidator and the basis of how they will be paid (if it’s a virtual meeting).
- The company is then in liquidation.
Remember, this is the typical procedure for a creditor’s voluntary liquidation, which is usually the most popular option for an average business. Other types of liquidation, such as the Members Voluntary Liquidation, may have a slightly different process and it’s always worth getting advice from a licensed insolvency practitioner first.
We have helped over 1,000 businesses steer a route through their financial problems. Whether you want to know more about liquidation or begin the liquidation procedure, we can help. Contact our team today.