When your company faces serious pressure from its creditors and lacks the resources and cash flow to repay them, it’s often best to dissolve the company and liquidate its assets.
Dissolving your company is relatively straightforward and can be completed in a number of ways. Companies can be liquidated and dissolved by court order from a creditor or voluntarily by the company’s directors or shareholders.
When a company is dissolved, its assets are liquidated in a liquidation sale to repay its creditors or compensate its shareholders. There are many different reasons for a company to be dissolved, not all of which involve creditor pressure.
If your company is commercially viable but you would no longer like it to continue operating – for example, if you wish to retire and extract the value of the company’s assets – you can dissolve it through a members’ voluntary liquidation (MVL).
An MVL involves the shareholders of the company deciding to dissolve it in order to liquidate its assets. These assets are then extracted in the form of capital gains. This often reduces the amount of tax the earnings from company assets are subject to.
In order to close your company and liquidate its assets via an MVL, your company needs to comply with certain criteria:
The process of MVL is simple, allowing you to extract your company’s value in cash without being subject to income taxes; instead, all of the income from an MVL is subject to a capital gains tax.
You, and other shareholders in the company, will need to prepare a declaration of solvency, showing you can repay creditors within 12 months.
This, along with an MVL petition, is submitted to the court. A liquidator is appointed to manage the sale of your company’s assets and the procedure of liquidating assets begins, allowing you and other shareholders to easily dissolve your company.
A creditors’ voluntary liquidation (CVL) is a form of business liquidation in which your company’s directors voluntarily wind up the business and liquidate its assets in order to raise capital to repay its shareholders.
A CVL is suitable for insolvent companies under creditor pressure. The CVL process involves speaking to an insolvency practitioner, reviewing the options available to your company and, if appropriate, starting the liquidation process.
In the event that your company is insolvent and owed money to creditors, it’s vital that you act in the best interests of its creditors. If liquidation is not the best option for your company’s creditors, your company may need to consider an alternative.
Alternatives to a CVL include entering into a company voluntary arrangement (CVA) to repay creditors, entering into administration to restructure the company or using emergency financing to recapitalise the company and continue trading.
If a creditors’ voluntary liquidation is found to be the best option for creditors, your insolvency practitioner will meet with the creditors in to appoint the liquidator and initiate the process of selling your company’s assets and closing the business.
In the event that your company becomes insolvent, you’re required by law, as the company’s director, to fulfil your director’s duties. These include ceasing trading immediately when you become aware of your company’s insolvency.
During the liquidation process, the liquidator will investigate your company to see that you (and other directors) did not trade wrongfully or fraudulently. Wrongful trading charges can result in personal liability and a range of serious penalties.
Whether your company is severely indebted and facing pressure from its creditors that makes business difficult or you simply wish to close your company and retire, dissolving your limited company is far from difficult.
We’ve helped hundreds of UK company directors and shareholders dissolve their businesses without issue or delay. Contact us now to learn about your best options for quickly dissolving your company.