Liquidation is the process of closing a limited company and realising the assets to pay creditors.
There are two types of insolvent liquidation. The first type is called Creditors Voluntary Liquidation. This is described below as this is the most common type of liquidation. The second type, Compulsory Liquidation, is described at the end of this article.
This is where the directors decide to liquidate and appoint a Licensed Insolvency Practitioner like us to help them manage the process.
It is good for;
- When you know you cannot carry on trading.
- Clearing tax liabilities and having a legal and proper method of closing down.
- Helping staff to get paid their redundancy.
- Still having some control over the process. For example, if you want to buy some of the assets.
What we will ask for to start the Creditors Voluntary Liquidation process (do not worry if you do not have it all):
- Photo identification for the directors and any shareholder who owns more than 25%.
- The last 3 years full annual accounts.
- More recent management figures from your account system and a profit and loss and balance sheet to date.
- A list of your aged creditors including names, addresses and amounts due.
- Details of any in progress legal action such as winding up.
- A lost of any amounts due on loans, to the bank or on hire purchase/lease.
- A list of employees with their names, addresses, rates of pay, start date, normal hours and holiday entitlements.
- Details of any company pension scheme.
- Your VAT and PAYE tax references and the amounts owed in tax.
- Your company bank details and current approximate balance.
- A list of your company assets including details of those on finance.
- A list of other assets such as aged debtors or stock held.
- Details of any property owned or leased.
- A brief company history.
We normally agree a fixed fee to liquidate a company which covers putting the company into liquidation and notifying all the creditors. It includes the cost of covering “What happens in days 1 to 8” listed below.
There is then a second part to the fee post appointment which we must agree with creditors for the work we do. This is usually reported to creditors as a fee forecast estimate that they vote on to approve.
We also recover any direct disbursements we pay out such as statutory advertising.
What actually happens pre the date of a Creditors Voluntary Liquidation? Days 1-8
- We usually meet the directors and explain the process and let them ask us questions and make sure liquidation is the correct procedure for them.
- Once the decision is made to liquidate it usually takes about two weeks to put the company into liquidation, although it can be done in less time. A common reason to do it quicker is to deal with employees who need to be paid.
- Trading will usually stop once the decision is made to close and we will help lay off all the employees (who can make a claim from the government for arrears of pay and redundancy) and close down any company premises to make them secure.
- We prepare all the necessary paperwork to liquidate including; notice to shareholders, creditors, board minutes and resolutions and the advert that will go into The London Gazette. The directors have to sign these forms.
- We send out notices to shareholders who have to meet to approve the resolution for liquidation.
- We send out all the notices to creditors and shareholders notifying them of a deemed meeting date or a virtual meeting date about 8-14 days away.
- We also send forms to the employees so they can claim their redundancy and unpaid salary from the Redundancy Payments Office. Directors can make a claim for this as well. The government usually take 2 -3 weeks to start paying out amounts due to employees from the date of liquidation.
- We then gather information about the company to prepare a report to creditors and shareholders. This is sometimes called a SIP 6 report. This report includes a company history, a list of all the assets, creditors and shareholders. It will also include a summary of the last few year’s annual accounts.
- The day of the creditors deemed or virtual meeting and shareholders meetings arrive. We help hold the meetings and present the report. This is the day the company actually goes into liquidation. A director needs to chair the meeting although it can be done via video link.
What happens after the company goes into Creditors Voluntary Liquidation? Day 8 onwards
- We write to and notify all the creditors and shareholders that we have been appointed as liquidator and ask for them to submit their claims.
- We advertise we have been appointed in the London Gazette and notify Companies House.
- We make sure we have all the company’s books and records and employee records and store them.
- If there are assets to be sold like plant and machinery we often appoint an agent like an auctioneer to help collect these and sell them.
- We insure these assets and make sure they are safe. We also agree any retention of title claims with suppliers who have supplied goods.
- We start the process of selling any assets, collecting in book debts and accumulate these into a client bank account.
- We carry out an investigation and look at the company’s books and records to see what happened and trace any assets.
- We agree the creditors’ claims if it is likely they will be paid a dividend. We will give creditors a final written notice to make a claim.
- We help employees process their claims from the government.
- Sometimes at this stage we will be ready to close and we send a final report to all creditors and shareholders including a dividend so that the case can be closed. In smaller cases this is often at the six months to one-year period after the liquidation started.
- Although we close the liquidation we keep the records for at least one year afterwards.
This is usually where the company is forced into liquidation by an unpaid creditor and the Court decides to wind the company up and appoint a Liquidator. Quite often the creditor pushing you down this route is HM Revenue and Customs.
It is good for;
- The other side pays the costs of liquidation.
- If you do not have any assets or anything to save.
- And you don’t want any control of the process such as being to buy the assets.
It is not good for;
- Speed as it can take three months or more to get into liquidation.
- There is a fixed £6,000 fee plus 15% on assets realised.
- Directors often find it intimidating being interviewed and questioned by a civil servant.
Find Out More
Liquidation can be a daunting process filled with technical jargon. To give you a clearer picture and understand we have put together a FAQs page that can answer some of the questions you may have and shed light on the different procedures available. View all our liquidation FAQs here or click the links below to view the most popular articles: