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Liquidation Companies

Are you considering winding up your company? If your company is overburdened by debt and financially insolvent, voluntary liquidation is an effective way to end the company and sell off its assets to raise cash and pay its creditors.

There are two types of voluntary liquidation for UK companies: Creditors’ Voluntary Liquidation (often referred to as a CVL) and Members’ Voluntary Liquidation (MVL).

Creditors’ voluntary liquidation is commonly used to close companies that are insolvent. When a company doesn’t have enough cash to pay its debts or has debts that exceed the value of all of its assets, it can wind itself up through the CVL process.

Members’ voluntary liquidation is used by solvent companies — companies that can afford to pay their creditors. A company’s directors and shareholders may choose to liquidate it using a CVL if the company’s director, for example, plans to retire and close the business.

Are you interested in liquidation in order to close your company? We offer expert assistance for insolvent companies considering voluntary liquidation, as well as for solvent companies planning to close through the MVL process.

When is company liquidation the best option?

Since liquidation results in the closure of a company and the sale of its assets, it’s generally only used if a company is commercially unviable. This means that a company has no possibility of recovering from its current financial problems.

A company is considered unviable if it has financial problems that prevent it from ever trading again, such as a crushing amount of debt and very little cash flow. Not all insolvent companies are unviable — many can, with the right insolvency procedure, become solvent again.

If your company is insolvent or will soon become insolvent, you need to speak to an insolvency practitioner as soon as possible. They will analyse the company’s finances and determine the best option for the company and its creditors.

In the event that the company is viable, the best solution might be a CVA (Company Voluntary Arrangement) or administration. If the company is no longer viable, the most common option is to ‘wind up’ the company through the creditors’ voluntary liquidation process.

Is it possible for creditors to liquidate a company?

Yes. If a creditor is owed more than £750 and has been ignored by a company after sending a demand for payment, it’s possible for the creditor to start the process of liquidating the company through the court.

This form of liquidation is called compulsory liquidation. It’s a very risky option for the company’s directors, as they face a significantly higher chance of being charged with wrongful trading after failing to take action when the company became insolvent.

The compulsory liquidation process begins with the creditor sending a statutory demand to the company. This is a formal demand for payment. If the debt is worth £750 or more and the letter does not receive a response within 21 days, the creditor can take further legal action.

The next step is for the creditor to file a winding up petition. This is a petition to the court asking to liquidate the company. At this point, the company can respond to the winding up petition via an insolvency procedure, or allow the creditor to begin the liquidation process.

If the company doesn’t dispute the winding up petition or use an insolvency procedure such as a CVA or administration, a liquidator is appointed and the company’s assets will be sold. Revenue from the asset sales is used to compensate the company’s unsecured creditors.

If you are a company director under pressure from a creditor, you need to take action as soon as possible. The compulsory liquidation process is fraught with risks for company directors and is almost never preferable to other liquidation and insolvency procedures.

Learn more about compulsory liquidation and the risks involved in allowing a creditor to wind up your company in our Guide to Compulsory Liquidation.


Alternatives to liquidating your company

Is your company experiencing financial problems? If your company is viable, there might be an alternative to liquidation. Proposing a CVA, entering into administration or raising cash through emergency financing are all alternative options for commercially viable, insolvent companies:

  • Proposing a Company Voluntary Arrangement lets your company renegotiate its debts directly with its creditors and potentially write off some debt while paying back creditors over an extended period.

  • Entering into administration protects your company against court action from creditors, ensuring that it won’t be liquidated while the administrator reorganises the business to overcome its financial issues.

  • Emergency financing solutions such as invoice factoring and discounting provide your company with improved access to cash, letting it service its debt and pay its creditors in the short term.

Liquidation is usually viewed as a last option for insolvent companies with no hope of financial recovery. If your business can recover with a change in its circumstances, it may be better for both the company and its creditors to propose a CVA or enter into administration.

Get confidential advice from our expert insolvency practitioners

Are you considering company liquidation? If your company is insolvent or struggling financially, you need to take immediate action to prevent being charged with wrongful trading for continuing to trade after learning your company is insolvent.

Our experienced insolvency practitioners have helped hundreds of UK businesses recover from serious financial distress. We can examine your company’s finances and find the most effective solution for both your company and its creditors.

With the right procedure, your company may be able to recover. You will receive confidential, actionable advice from our experts on the options available for your company, from Company Voluntary Arrangements to voluntary liquidation.
If your company is financially solvent and you would like to liquidate voluntarily to dissolve the company, we can also assist you with the Members Voluntary Liquidation process. Contact us now to speak to an experienced insolvency practitioner and take action for your company.