A company is usually placed into compulsory liquidation by a creditor who has become fed up with waiting to get paid and has exhausted every other avenue of recovery.
The creditor presents a winding-up petition and, on the making of the winding-up order, the official receiver is usually appointed as liquidator. He will investigate the circumstances of the failure and deal with the assets and liabilities.
What is company liquidation and compulsory liquidation?
What is company liquidation?
Company liquidation is the legal process of closing down a company and selling its assets to pay off its debts. This usually happens when a company can’t pay its bills, or a shareholder decides to shut it down.
During company liquidation, a liquidator is appointed to take control of the company’s assets and distribute them to creditors fairly. Once all debts and liabilities are settled, any remaining funds are distributed to the company’s shareholders.
While this can be a difficult and emotional process, liquidation is often the best option for a company that is struggling to recover from financial difficulties.
What is compulsory liquidation?
Compulsory liquidation is the legal process where a company is forced to close down and its assets are sold off to pay its debts to creditors. This happens when a company is unable to pay its debts and the creditors petition for the company’s liquidation to the court.
Once a court order has been granted, the company’s affairs are placed under the control of a liquidator who manages the sale of the company’s assets. The profits of this sale are then distributed among the creditors.
Forms of UK liquidation
The type of liquidation process used will depend on your company’s specific circumstances like its financial situation, legal structure, and the preferences of its directors and shareholders. Here are the forms of liquidation that you should know about.
Compulsory liquidation
When a court order is issued to liquidate the company’s assets and pay off its debts when a company can’t pay their bills.
Creditors’ voluntary liquidation (CVL)
CVL is when a company is insolvent, the directors initiate the process of liquidation, and an insolvency practitioner is appointed to liquidate the company to pay off its creditors.
Voluntary liquidation
Voluntary liquidation is when the company initiates the liquidation process and appoints a liquidator to manage the process.
Members’ voluntary liquidation (MVL)
MVL when a company is solvent but its shareholders want to close the company down. They can initiate this process and appoint a liquidator to distribute assets to the shareholders.
Provisional liquidation
A provisional liquidation is a temporary liquidation process used to protect a company’s assets until a more permanent solution is found like selling or restructuring the company.
The UK liquidation process
If you’re considering liquidating your company in the UK, there are some steps you should be aware of:
1. Appointing a liquidator – once the company directors have recognised that the business is in financial difficulty, they can appoint a licensed liquidator who will be responsible for managing the liquidation process.
2. The realisation of assets – the liquidator’s next step is to identify and sell the company’s assets such as property, inventory, machinery or collecting outstanding debts. The profits from the sales are used to pay off the company’s creditors.
3. Payment of creditors – once the assets have been realised, the liquidator is responsible for paying off the company’s creditors as set out in the UK’s Insolvency Act 1986.
4. Distribution of remaining assets – if there are any remaining assets after paying all the creditors, the liquidator will distribute them among the shareholders.
5. Closing the company – once all creditors have been paid and the assets distributed, the liquidator closes the company. The company is then removed from the register and will no longer exist as a legal entity.
It’s important to seek professional advice from a lawyer or insolvency practitioner like Frost Group to ensure that all necessary steps are taken to complete the liquidation process successfully.
What to consider before compulsory liquidation
If a company is struggling financially, it’s important to act fast and communicate with creditors to avoid the winding up petition. Once this has been issued, it becomes more challenging to negotiate with creditors and the company may have to pay additional costs for legal representation.
Negotiating can involve presenting a proposal for repayment which may include extending the repayment period, reducing interest rates, or writing off a portion of the debt. It’s also important to review the company’s financial position to determine if compulsory liquidation is the best option.
If you have received a winding-up petition
Frost Group are experts in turning around troubled businesses and are here to help you take back control.
We will talk you through all your options and apply for a validation order to unfreeze your bank account or wind up your business on your terms with a voluntary liquidation.
Whatever you decide to do, we will make the whole process as stress-free as possible, and you are assured of professional service and expert advice.
Acting on behalf of creditors
We give free and impartial advice and our Insolvency Practitioners often act as liquidators on behalf of creditors in Croydon, London and Bournemouth.
Why choose Frost Group
We will fully explain the range of possible options and recommend which we think is right for everyone concerned, and why.
Our nationwide company Liquidation service operates from our offices in Bromley, Leicestershire, London and Croydon. If you need a speedy and cost-effective Liquidation and are close to one of our offices, we can arrange for an Insolvency Practitioner to see you within the hour. We are of course, always available for phone calls, Zoom, Facetime, WhatsApp or Teams meetings.
Both Jeremy Frost and Patrick Wadsted can act as liquidators to liquidate your limited company quickly and professionally. This will stop creditor calls and help you, as directors, to start to plan and live your life again.
Using our expertise, we will help secure the best out come for creditors and stakeholders, and we can continue to advise after the liquidation, including advice on new business ventures.
If you think liquidation may be right for your company, speak with one of our licensed Insolvency Practitioners by phoning 0345 2600101 for advice that is free and confidential (or 07714 099691 out of hours).
