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Learning more about voluntary liquidation

Voluntary Liquidation: Is it Your Company’s Best Option?

Is your company no insolvent and no longer commercially viable? Markets change a great deal over time, and although your company may have been highly profitable in the past, its current cash flow and assets may mean it’s no longer viable.

If you believe your company does not have a viable future, the best way to bring it to an end could be through voluntary liquidation. Liquidation – in this case, a creditors voluntary liquidation – lets you quickly and easily close down your company.

During a voluntary liquidation, your company’s assets are liquidated in order to pay creditors. A voluntary liquidation is initiated by the company’s directors, instead of being initiated by creditors or a court order.

There are numerous advantages and disadvantages to voluntary liquidation. In this guide, we’ll explain the voluntary liquidation process to help you understand if it’s a suitable solution for your company.


What is voluntary liquidation?

Most people associate the word “liquidation” with the forced closure of a company and sale of its assets due to a court order. Not all company liquidations are forced; many are the result of company directors deciding to close down their business.

Voluntary liquidation is when a company’s directors make the decision to close the company down and liquidate its assets. Creditors voluntary liquidation is the UK’s most common form of company liquidation, with over 13,000 cases every year.

Creditors voluntary liquidation is usually only initiated if your company is no longer viable. If your company is viable but is currently experiencing a cash flow crisis or a temporary setback, other solutions – such as a CVA – may be more appropriate.

Liquidation is typically inexpensive and straightforward, and if you, as the company director, have acted responsibly and lawfully during the company’s operation, there is very little chance of wrongful trading charges being an issue.


What is the voluntary liquidation process?

The voluntary liquidation process is straightforward and simple. The first step is the appointment of a third-party liquidator. In order to initiate liquidation, you (and any other company directors) will need to speak to an insolvency practitioner.

The insolvency practitioner will examine your company’s financial situation and see if voluntary liquidation is the most appropriate solution. In order to begin company liquidation, all directors will need to agree to the CVL process.

During this process, if directors disagree about liquidation being the most suitable course of action for the company, the insolvency practitioner may propose a CVA – company voluntary arrangement – or pre-pack administration solution.

Once the voluntary liquidation process has been initiated, a meeting is held between your company’s directors, its creditors and the liquidator. Your creditors may want to appoint their own liquidator to manage the sale of your company’s assets.

Following this meeting, the appointed liquidator will begin the process of selling the company’s assets in order to repay its creditors. The liquidation process can involve recovering unpaid debts and other amounts of money owed to the company.


Could you face wrongful trading charges?

In most cases, the process of company liquidation is straightforward, with creditors receiving some or all of the amount that they are owed following the liquidation of the company’s assets.

However, if you or any of the company’s other founders have acted wrongfully while the company was trading or failed to fulfil your duties as directors, wrongful trading charges could be initiated.

If you or other company directors are found guilty of wrongful trading following the voluntary liquidation of your company, there is a possibility of you being held liable for a percentage of the company’s debts.

Being found guilty of wrongful trading can also result in you and any other company directors being banned from becoming directors of other UK companies for as much as 15 years.

While wrongful trading charges are a possibility in any company liquidation case, it is far more common for serious charges to result from compulsory liquidation than from the voluntary liquidation of a limited company.


Can you start another similar company?

Although it’s possible to initiate voluntary liquidation and start a similar company after your old business has been liquidated, you will face serious restrictions. New companies must not share elements – such as names – with the closed company.

If you believe that your business is viable but want to shut down for a “fresh start”, voluntary liquidation is rarely the best solution. Other options, including pre-pack administration, are better suited to restarting a struggling but viable company.


Learn more about voluntary liquidation

If your company is facing significant pressure from creditors and you believe it’s time to close it, voluntary liquidation could be a good choice. We’ve helped more than 100 UK businesses smoothly work through the liquidation process.

Contact us now to learn more about the voluntary liquidation process and take the first step towards liquidating your company, ending creditor pressure and moving on with your professional life.

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We have a team of advisers who have helped hundreds of businesses around the UK that have faced financial pressures on every scale. We can help you with queries about dealing with business debts, creditors, VAT arrears and advice on how to select the very best way forward for your business, your clients, your creditors and your staff. We will provide the advice you need to restructure, refocus and recover.

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