Generally when people talk about bankruptcy in the UK this only applies to individuals. The term used in the UK for companies is Liquidation.
When a company can no longer afford to pay its debts as and when they fall due, the company may be what is described as insolvent. When a company is insolvent then advice should be taken to see if the company can be rescued and returned to profitability.
If the company cannot be rescued and is incurring more debt, then it may be appropriate to place the company into liquidation, so that an insolvency practitioner can try to pay back as much as the debt as possible to the company’s creditors.
This is the process of voluntarily winding up a company when a company cannot pay of its debts. When the rescue procedure of CVA and Administration cannot be achieved, CVL is usually the last option available for company rescue as opposed to creditors using a winding up petition to court in order to compulsory liquidate the company.
This is a voluntary process of liquidating or winding up a solvent company by its shareholders. When the decision has been made to close down a company and all the assets have been sold, a formal winding up through a MVL is often a tax efficient way of distributing the funds as the tax payable will be capital tax gains tax rather than income tax.
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Compulsory Liquidation or “winding up” is a formal insolvency procedure where a business is issued a winding up order by a court.
If a company owes £750 or more, the creditor can issue a petition against the company in the court.
Once the court order has been made then the company is in liquidation. The Official Receiver who works for the government body of the Insolvency Service, which is a division of the Department for Business, Innovation & Skills (formerly the known as the DTI), initially is the receiver and manager of the company who conducts an investigation into the business and affairs of the company.
This is unlike a creditors voluntary liquidation whereby the appointed liquidator will conduct any investigation into the business.
Upon the request of the creditors of the company, an independent liquidator can be appointed whose job will be either to perform a more in depth investigation into the company or to deal with the remaining assets of the company.
Once a company goes into liquidation then a liquidator is appointed this either be an independent liquidator like the ones at Inquesta or this can be the Official Receiver (the Official Receiver will only deal with Compulsory Liquidations).
Ultimately the purpose of the company going into liquidation is for the liquidator to maximise the realisation of the company’s assets.
There are a number of ways which the liquidator can do this, this can be through selling the assets of the company (i.e. stock, plant and machinery, property, fixtures and fittings), collecting in debtors (people who owe the company money), investigating into any antecedent transactions that the company may have into, investigating into the actions of the directors.
Once the liquidator has realised the assets of the company (as described above) then a distribution can be made to creditors.
There is an order of priority which the liquidator has to follow when making a distribution to creditors as follows:-
Costs and expenses of dealing with the fixed charge
Fixed Charge Creditors
Cost and expenses of liquidation (including the liquidators remuneration)
Preferential Creditors
Floating Charge Creditors & Prescribed Part
Unsecured Creditors
Shareholders
So depending on which category you fall into will depend on how much you get as each of the categories have to be paid in full before the next category gets paid. This ultimately means that in an insolvent liquidation the shareholders usually get nothing at all and the unsecured creditors are paid a few pence in the pound, while the preferential creditors are usually paid in full.
Whether a business is solvent or insolvent, the appointed liquidator is responsible to manage the liquidation of the company. So, the appointed liquidator will owe their primary duty to the creditors as a whole. They will have to realise and distribute assets, maximising realisations for creditors.
They will have to investigate the Company’s affairs, which may lead to them taking action against individual Directors in respect of transactions and the disposal of assets entered into by the Company, and/or submit adverse reports to the Secretary of State when reporting under the Company Directors Disqualification Act (CDDA).
This may, from the Board’s perspective, appear hostile, although the Liquidators will merely be fulfilling their statutory duty as required.
If you choose to liquidate a company, any legal action taken against the company is stopped which gives you the option to explore business options without being pressurised by creditors
Once the company is liquidated, the liquidator sells the assets of the company to pay off its creditors but any unpaid limited company debts are written off. Unless directors of the company have given personal guarantees the directors are not responsible for the repayments
Directors relieved from the pressure of managing an insolvent business
Investigation into conduct of directors.
When the company is liquidated, the employees are made redundant which leads to losing all the experienced workforce.
If the directors have personally given guarantees to any of the debt, the creditors will be able to pursue the directors personally for any outstanding balance
Should you need help in liquidating your company, contact us on 0800 093 4604 or live chat with us. Alternatively, you can complete our enquiry form and one of our Liquidation Insolvency Practitioners will be in touch with you.
Dissolution represents an informal process whereas liquidation is a formal procedure which involves the appointment of a licensed insolvency practitioner who acts as the liquidator of the company.
Dissolution:
Normally when a company has fulfilled its purpose and is no longer active, dissolution (otherwise known as striking off) represents a cost-effective way of striking off a company from the register at Company House. This can be done by submitting form DS01 at a cost of £10 which has to be paid to Companies House. By submitting the form, Directors are confirming that the Company:
Directors should be aware that a Company’s asset position must also be considered prior to Dissolution. Assets that still belong to the Company upon dissolution would now be regarded as ‘Bona Vacantia’ (vacant goods) which by law pass to the Crown.
Companies House has itself the right to dissolve a company for non-compliance. This may be as a result of a Company:
When a company is dissolved, it will remain on the Register and marked as “dissolved”. This status will remain for 20 years at which point it will be archived.
Liquidation:
Liquidation involves the process of formally closing down a company under the auspices of an appointed liquidator, who will liquidate the assets of the Company and use the sale proceeds to repay creditors.
Depending on the financial situation of the business i.e. whether it is solvent or insolvent, one of the following three methods may be used to liquidate the Company.
For more information about the best option to close a company, feel free to contact our team of licensed liquidation practitioners at 08000934270 or complete the enquiry form here.Our initial advice is free and we offer a nationwide service.
There is no automatic restriction on a director of an insolvent company being a director of another company. However, there are certain restrictions on the re-use of the same or similar name as the liquidated company, which are set out in Section 216 of the Insolvency Act 1986.
The legislation was enacted to prevent directors from liquidating companies and then starting up a “phoenix” company straight away.
The restrictions apply to anyone who has been a director of a company in the 12 months before it goes into insolvent liquidation. A Director is restricted, for a period of five years, from using the same name or a name so similar to suggest an association. This applies to the company name and any associated trading names or styles.
Directors of the insolvent company should not be involved directly or indirectly in such a company and if found guilty of breaching s216, would be liable to imprisonment or a fine or both, as well as being made personally liable for the debts of the new company under s217.
There are three exceptions to the ban.
2. If a Director applies to court for permission to use a prohibited name within 7 business days of the date the company went into Liquidation, he/she may use the prohibited name for up to 6 weeks from the date of liquidation or for any lesser period decided upon by the court.
3. If the prohibited name has already been in use for 12 months prior to the liquidation.
The Liquidator must be an authorised insolvency practitioner and takes immediate control of the business.
The Liquidator has a range of powers, duties and responsibilities, all of which are set out in The Insolvency Act 1986.
In a Creditors’ Voluntary Liquidation (CVL), the liquidator acts in the interest of the creditors, not the directors. His primary role will be to realise the assets of the Company and distribute monies to creditors.
The Liquidator has a range of other powers and duties, including agreeing creditor claims, appointing agents to value the Company assets, complete tax returns and provide regular updates to the creditors.
The Liquidator has a duty to investigate the affairs of the Company as well as the circumstances leading up to the Insolvency. He will also examine the conduct of Directors in the lead up to the liquidation.
In a Members Voluntary Liquidation(MVL), the liquidator’s role is to collect assets, pay any outstanding creditors and then pay the residual funds to the shareholders before dissolving the company.
A Liquidation is a terminal event for a Company. The Liquidator takes control of the Company and takes steps to sell the assets of the Company for the benefit of creditors.
Contracts terminate and the Company ceases to trade. The Liquidator will agree the claims of the creditors before distributing any residual sale proceeds to the creditors.
In a Members Voluntary Liquidation, the liquidator’s role is to collect assets, pay any outstanding creditors and then pay the residual funds to the shareholders before dissolving the company.
Advantages of Liquidation
Disadvantages of Liquidation
The Official Receiver is a civil servant employed by the Insolvency Service. Otherwise known as The O.R., he manages at least the first stages of companies wound up by a court (or Compulsory Liquidation). A Director has no control over who is appointed Liquidator in a Compulsory Liquidation, as it is the O.R. who decides whether to appoint a Liquidator, and who in the private sector should undertake this role.
In the case of a creditor’s voluntary Liquidation, the liquidator will be a licensed Insolvency Practitioner who works in the Private Sector. The initial choice of liquidator is made by the Director, although creditors may be able to appoint a liquidator of their own choice, if the value of claims enables them to outrank the original choice.
Unless the court has already ordered your company into liquidation, you can contact our team of licensed liquidation practitioner on 08000934270 or put an enquiry here for a free no obligation consultation.
This depends upon the complexity and size of the Company. In many circumstances, the process can be completed within 6 to 12 months, whilst in other situations it may take some time before all assets are realised and the process can be completed.
As soon as a liquidator is appointed, the remaining employees will be dismissed.
Staff working under an employment contract will be entitled to claim redundancy pay, along with a host of other statutory entitlements such as arrears of wages, overtime, or commission, pay for untaken holiday allowance and notice pay.
You can find the information about whether a company is in liquidation or the name of the liquidator on Companies House or in the London Gazette Website
Individuals and companies have separate credit ratings.
A company is a separate legal entity to a Director and generally the company’s Directors/shareholders are not personally liable for a company’s debts.
If you company is having financial issues, it is important to have the correct advice at the earliest to limit any possible adverse impact to the business.
Please call on 0800 093 4270 for a free no obligation consultation from one of our licensed insolvency practitioners or complete the enquiry form here.
Our initial advice is free and we offer a nationwide service.
In most cases, trading will crease and the liquidator will take control of the Company.
The employees will be dismissed that the liquidator will seek to realise assets for the benefit of creditors.
This will depend upon whether it can be determined that you were acting as an employee.
The Redundancy Payments Office has a specific form for Directors to complete to determine their eligibility to claim.
There are certain restrictions on the re-use of the same or similar name as the liquidated company, which are set out in Section 216 of the Insolvency Act 1986.
The legislation was enacted to prevent directors from liquidating companies and then starting up a “phoenix” company straight away.
The restrictions apply to anyone who has been a director of a company in the 12 months before it goes into insolvent liquidation.
A Director is restricted, for a period of five years, from using the same name or a name so similar to suggest an association. This applies to the company name and any associated trading names or styles.
Directors of the insolvent company should not be involved directly or indirectly in such a company and if found guilty of breaching s216, would be liable to imprisonment or a fine or both, as well as being made personally liable for the debts of the new company under s217.
There are three exceptions to the ban.
1. When the business of the liquidated company is acquired, a Director may use the name if, under arrangements made with the liquidator, the whole, or substantially the whole, of the insolvent company is sold by, or otherwise acquired from, the liquidator.
There are certain restrictions on the re-use of the same or similar name as the liquidated company, which are set out in Section 216 of the Insolvency Act 1986.
The legislation was enacted to prevent directors from liquidating companies and then starting up a “phoenix” company straight away.
The restrictions apply to anyone who has been a director of a company in the 12 months before it goes into insolvent liquidation.
A Director is restricted, for a period of five years, from using the same name or a name so similar to suggest an association. This applies to the company name and any associated trading names or styles.
Directors of the insolvent company should not be involved directly or indirectly in such a company and if found guilty of breaching s216, would be liable to imprisonment or a fine or both, as well as being made personally liable for the debts of the new company under s217.
There are three exceptions to the ban.
1. When the business of the liquidated company is acquired, a Director may use the name if, under arrangements made with the liquidator, the whole, or substantially the whole, of the insolvent company is sold by, or otherwise acquired from, the liquidator.
Notice must then be sent to creditors of the insolvent company and published in the London Gazette within 28 days of the date of acquisition from the office holder.
2. If a Director applies to court for permission to use a prohibited name within 7 business days of the date the company went into Liquidation, he/she may use the prohibited name for up to 6 weeks from the date of liquidation or for any lesser period decided upon by the court.
3. If the prohibited name has already been in use for 12 months prior to the liquidation.
