Liquidation is a difficult and emotional process for a business owner. Knowledge about this process and making the right decisions can make life easier and lead to developments being fully consistent with UK laws. At Tax-Pert Accountants, we offer business owners directional counselling on the whole process of liquidation so that you can have the confidence to move ahead. Read on for a general introduction to liquidation in the UK.

What is a Business Liquidation Process?

Liquidation is a total shutting down of the business and the distribution of its assets among the creditors. The process sets in when the company is no longer able to meet its liabilities or when its shareholders conclude they cannot do worthwhile business from the perspective of creditors. Once a company enters liquidation, it takes the cessation of trading, leaving an insolvency practitioner to handle its affairs.

Types of Liquidation exist in the UK.

The main categories of liquidation in the UK are the following:

1. Creditors’ voluntary liquidation (CVL)

Where an insolvent company cannot pay creditors, the directors decide to liquidate the company on the creditors’ behalf. A licensed insolvency practitioner is empowered to act and handles the liquidation process by realizing the company’s assets for the benefit of creditors.

2. Members’ voluntary liquidation (MVL)

MVL is a tool by which a solvent company is voluntarily liquidated, with the members deciding to close the business. This often occurs when a business’s objectives have been achieved, or an owner wishes to retire. In an MVL, all creditors will be paid and the remaining funds then distributed to its shareholders.

3. Compulsory Liquidation

Compulsory liquidation comes about following a court order, most often in response to a petition by the unpaid creditors. In case the company is declared insolvent by the court, an official receiver is made to distribute the assets of the company and pay off the creditors.

When Should Liquidation Be Considered?

In the given states, liquidation may be the best decision:

• The company unable to pay its debts as they fall due.
• Creditors have initiated legal set-offs in which they want to recover unpaid bills.
• The business has lost fund blessings; no business exists to the loss. 
• Shareholders wish to close a solvent business and share the profits.

A professional assessment from partners at Tax-Pert Accountants will assist you in sharing potentiality validation through liquidation or explore alternatives, such as restructuring and administration.

Liquidation Process

1. Assign an Insolvency Practitioner

In any kind of liquidation, the first milestone is installing an approved insolvency practitioner. These sorts of people render all services on asset valuations, creditor resolution, and doing anything else to comply with all legal niceties.

2. Stakeholder Notification

For a CVL or MVL to take off, the directors have to schedule and gather the right mix of shareholders with the required “liquidation” resolution. Creditors will be informed of the decision and given appropriate bric-a-brac.

3. Realize Assets

The insolvency practitioner will liquidate the company’s assets to generate funds. This includes anything from physical assets to physical inventory to, in theory, the company’s ideas.

4. Repayment of Liabilities

The liquidation proceeds are paid out to the creditors in the order of preference, with secured ones being paid first, and then those unsecured.

5. Dissolution of the Company

The dissolution and deletion of a company from the Companies House register are announced as soon as all the assets have been sold and all the liabilities have been eradicated.

How a Tax-Efficiency Accountant can Assist

Good Consultancy

Another of our experts’ services is advising whether liquidation is a possible route for a business by looking into their standing and the feasibility of other remedies. 

Sleek Management

With the help of our advisors, who will appoint an insolvency practitioner and manage creditor communication, the process is smooth and stress-free.

Business Tax Efficiency  Enhancing the tax efficiency of good businesses as judged in view of the MVL will create an environment of tax-exemption benefits such as Entrepreneur Relief, translating to tax breaks for the shareholders. 

Meeting Legal Compliance

The legalities in the approach to liquidation may demand a kind of compliance with a set of rules and regulations. Our team ensures that the regulatory compliance is there, hence reducing the risks for fines or litigation.  

Popular Liquidation Myths

Myth 1: Liquidation Is Like Personal Bankruptcy

Most of the time, directors hold no personal liability over company debts unless they render personal guarantees or act with wrongful intention. 

Myth 2: Liquidation Implies Another Business Can’t Begin

Following MVL-ed companies, directors would be able to commence new ventures except when prohibited by a court of law. But there may be some restrictions on the new business if it is the same as the already liquidated one. 

Myth 3: Liquidation Implies a business Is Failed

A liquidation for a solvent company can be seen as an option for winding up to knock out the entity in a tax-efficient way. It is not the case that it was always in financial trouble.

Frequently Asked Questions About Liquidation

1. How long does liquidation take to complete?

It depends upon the nature and terms of the liquidation. MVLs generally take less time while CVLs and compulsory liquidations can take several months.

2. What happens to the employees during liquidation? 

Employees are usually made redundant, and outstanding wages or redundancy pay become part of the claims against the company.

3. Can I be investigated during liquidation? 

Investigation of director conduct is a compulsory liquidation requirement. Any situation of wrongful or fraudulent trading may lead to criminal proceedings.

Conclusion 

While your business liquidation can be a major step, the right planning and professional advice are needed. Whether you are in financial hot water or just dealing with the closure of a solvent company, Taxpert Accountants’ expert team at Taxpert Accountants is here to assist you through this phase and deliver top-notch compliance, thereby reducing stress.

Please reach out to us for a free consultation and let us walk you through this first step toward a smooth liquidation process.