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Normally when a company has fulfilled its purpose and is no longer active, dissolution (otherwise known as striking off) represents a cost-effective way of striking off a company from the register at Company House.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:

• Has not traded in the last 3 months
• Has not changed its name in the last 3 months
• Isn’t subject to insolvency proceedings or have any legal actions outstanding against it.

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:

• Not having a director in office
• Failing to file confirmation statements
• Failing to file annual returns or accounts

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.

• Member’s Voluntary Liquidation: This procedure is relevant when a Company is solvent (ie it can pay off its debts) and may be appropriate upon the retirement of the Director, the sale of a business, or when a Director wishes to exit. A Declaration of Solvency is sworn by the Director(s) and distributions are subsequently paid to shareholders.

• Creditor’s Voluntary Liquidation: This is the process where a Director voluntarily winds up a company when a company cannot pay off its debts. This situation occurs when the test for insolvency is met i.e. liabilities exceed the company’s assets, or the Company is insolvent on a balance sheet basis and carrying on is not a viable option. The appointed liquidator realises and then distributes assets to the creditors.

• Compulsory Liquidation: A compulsory liquidation is usually brought about by creditors who force a company into liquidation after the issuing of a petition for the winding up of the Company. This is followed by the granting of a winding up order by a court. This has the most negative consequences for the company’s directors.

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

• The process of putting the Company into Liquidation is fairly straightforward for a Director.

• After a Director has met the liquidator’s costs of preparing a statement of affairs, all future professional fees are paid from the sale of the assets, making the process a fairly cost effective procedure

• If you choose to liquidate a company, any legal action taken against the company is stopped

• Once the company is liquidated, outstanding debts are written off. Unless directors have given personal guarantees, they are not responsible for the debts of the Company.

• Directors are relieved from the pressure of managing an insolvent business.

• The process allows employees to submit a redundancy claim to the governments Redundancy Payments Office, which, subject to statutory limits, will cover redundancy pay, notice pay, arrears of wages and holiday pay.

Disadvantages of Liquidation

• The Liquidator must investigate the conduct of directors and provide a report to the Department for Business, Energy and Industrial Strategy. This could lead to action being taken against a Director, which includes being struck off from acting as a Director for a period of time.

• Employees will be made redundant. Although claims can be made to the Redundancy Payments Office, this could still lead to significant hardship.

• The Director loses control of the Company and is obliged to comply with the reasonable requests of the Liquidator.

• Liquidation will not prevent creditors from pursuing Directors under any personal guarantees that they may hold.

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.

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.

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.

If your employer goes into liquidation or administration then your maternity pay will be paid by HM Revenue and Customs at the statutory level and not the level you were receiving from your employer.

The excess owed to you by your employer can be claimed from the company in liquidation although you may not be paid in full (if anything at all) and it make few months.

If you are having problem in getting paid for the statutory amounts, contact the liquidator of the company in liquidation or the HM Revenue and Customs national helpline.

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.

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.