How to liquidate your business

How to liquidate your business

When you close down your business you can simply dissolve it or you may decide to liquidate your business.

Our last blog looked at how to simply close it – or strike it off – without the need to liquidate it. But your business must be a solvent company, so the business must have enough cash and assets to clear its bills.

You can still decide to liquidate the business even if it is solvent. This is useful if you have lots of assets. The first question to ask is…

Am I solvent? 

You need to ask yourself two questions? Does your company have more assets than liabilities? And can your company promptly pay its debts? If the answer is ‘no’, your company is insolvent. In other words, you don’t have the resources required to pay your liabilities.

Liquidate your business 

Liquidation is the winding up of a company. It means selling off assets to distribute them depending on whether the business is solvent or insolvent.

While liquidation is easy to understand, there are three types of liquidation. The processes that follow differ for each type.

Members’ Voluntary Liquidation

The business owner might choose to discontinue the company for a variety of reasons. In this case, members’ voluntary liquidation means the business is still able to make its payments on time, but it is the choice of the business owner or partners to wind-up. 

Creditors’ Voluntary Liquidation

If a director recognises that the firm is not able to pay its debts, they can begin the process of liquidation. They must first conduct a vote with the shareholders. If the majority of shareholders (75% or more) vote to liquidate, then the process can begin.

Compulsory Liquidation

In this situation, the company is completely unable to make payments to its debts. The directors must apply to the courts to request that liquidation is implemented.

The role of the liquidator

The liquidator manages the liquidation process. Their main responsibilities are to take stock of the company’s assets and pay, if funds are available, a percentage to the creditors (people owed money).

If you need any advice on any of the above, it’s always best to speak to a professional first to ensure you’re making the correct legal steps to liquidating your company.

What next?

If your directors and shareholders are in agreement that your company is insolvent, you’ll require a Creditors’ Voluntary Liquidation (CVL) to shut it down. The company’s assets are therefore allocated to the parties that are owed money. Before you go ahead, 75 per cent of shareholders need to agree to a CVL. How long it will take to complete the CVL process will differ from business to business, depending on the size of the company and how complex its assets and debts are.

Once the process has been completed, the company will be struck off from Companies House’s register and will officially no longer exist.

• For advice and information about your company’s finances, you can contact us for information