What Happens When a Company Goes into Liquidation?

The Three Different Types of Liquidation

When a company is placed into liquidation its assets are sold by the liquidator and the monies realised from the sale are used to a pay a dividend to its creditors.  If the creditors are paid in full, a distribution is made to the shareholders.

Who can Act as the Liquidator?

The liquidation must be administered by a Licensed Insolvency Practitioner who is appointed for that specific purpose.  The Licensed Insolvency Practitioner will be appointed as the Liquidator of the Company, and has the legal authority to deal with all of the Company’s assets and creditors. 

What will the Liquidator do?

The Liquidator will look to collect in any debts owing to the Company from customers who have not paid.  They will also look to sell any tangible assets owned by the Company, usually by instructing agents.  If there is an interested party, who wishes to buy the business then the Liquidator will try to negotiate a sale with that party.

The Liquidator will also keep all directors, shareholders and creditors informed throughout the process.  They will also deal with any outstanding contracts, and look to bring those contracts to an end or disclaim them.  For example if the Landlord will not surrender the lease then the Liquidator will disclaim the lease.

The Liquidator also has a duty to investigate the affairs of the Company and make a report to The Insolvency Service on the conduct of the directors.  The Liquidator will also have to deal with any issues arising from that investigation and any queries that are raised by The Insolvency Service. 

Once the Liquidation is complete the Liquidator will compile a report to the creditors and will then take steps to vacate office and have the Company removed from the Registrar.

The three types of liquidation

There are three types of liquidation:

  1.   Creditors Voluntary Liquidation,
  1.   Compulsory Liquidation and
  1.   Members Voluntary Liquidation.

The first two are often referred to as insolvent liquidations because usually there are not enough assets to pay the creditors in full and there is a shortfall.

The third type is often called a solvent liquidation because it is expected that all creditors will be paid in full and a capital distribution will be made to the shareholders, often with significant tax advantages.

The difference between a creditors’ voluntary liquidation and a compulsory liquidation is that in a creditors’ voluntary liquidation the directors decide to voluntarily place the Company into liquidation. This is an extremely quick, efficient and cost-effective way to bring the life of a Company to an end.

By contrast in a compulsory liquidation the Company is forced into liquidation by way of a court order.  Directors rarely use this route to place their own companies into liquidation; instead it is usually used by creditors to force a company to be wound up through the courts.

Compulsory liquidation is quite a cumbersome process and it can take anywhere from six to twelve weeks for a winding up order to be made.

Further Information

More information on each type of liquidation process can be found by clicking on the links.

If you would like to discuss the liquidation of your company with a Licensed Insolvency Practitioner please either telephone 01305 458 383 or email chris@purnells.co.uk and I would be happy to provide you with free and straight forward advice on the liquidation of your company.

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