Company Closure Advice
Creditors Voluntary Liquidation
This is the process (commonly known as ‘Liquidation’) which is used to close an insolvent company because the company is unable to continue trading and there is no possibility of the company’s business continuing. The liquidation process can only be managed by a licensed insolvency practitioner.
Liquidation may take place many months after a company has become insolvent. If the directors of the company allow the company to continue trading after the company has become insolvent they must make sure that all their actions are to provide the best outcomes for the creditors of the company.
If you are a company director and you are considering closing your company it is vital that you take advice at the earliest opportunity. You need to make sure you know what you can do and what you must not do before the liquidation process commences.
Company Insolvency
A company becomes insolvent when it is unable to pay its debts when they become due for payment or when debts are more than the total of its assets. When this happens the company’s directors must act carefully to protect the interests of the company’s creditors in priority to acting in the interests of the company’s shareholders.
Members Voluntary Liquidation
When a company which is solvent but has reached the end of its useful life the company may be wound up by using the process known as Members Voluntary Liquidation (MVL). An MVL can be a tax efficient way for the company’s shareholders to close the company and extract the values of their shares in the company. The company must be solvent for it to be wound up using an MVL so it must be able to pay its liabilities in full within 12 months of the winding up commencing.
If your company does only has minimal assets or cash the company may be dissolved by simply filing a notice with Companies House as an alternative to an MVL.
Creditors Voluntary Liquidation (CVL) Process
The CVL process will begin when the directors formally decide at a board meeting to place the company into liquidation. Before this decision is taken the directors will obtain advice from an Insolvency Practitioner on all options available to the company which may allow the company to trade to obtain the best outcome for the company’s creditors. We will help you at this stage by advising you on your obligations and helping you make the right decisions.
The directors start the CVL process by passing a board decision to place the company into liquidation. The shareholders of the company then have to also pass a decision to place the company into liquidation before the winding up process can begin.
Once the decisions have been passed a licensed insolvency practitioner is appointed to manage the liquidation. The insolvency practitioner will normally be the Insolvency Practitioner chosen by the directors and shareholders of the company but in exceptional cases the company’s creditors may choose to appoint their own Insolvency Practitioner.
When the directors take the decision to place the company into liquidation the company will normally cease trading. The directors will continue to act as the company’s directors but their duties will now be to keep the assets of the company safe for the benefit of the company’s creditors.
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