If you have determined it is time to close your company either because it is bankrupt and cannot continue or you want to stop trading for some other reason then you need to go through a liquidation process.
The most common form of liquidation is creditors voluntary liquidation (CVL). A creditors voluntary liquidation is used if the company is under serious pressure. The board does not think it can be profitable or viable and the business is unable to pay its creditors. To undertake a CVL, the following steps will be undertaken:
1. Firstly the directors must agree on liquidating the company. Once in agreement an insolvency practitioner must be introduced to the board. He or she will review the current financial position, future prospects and director s risk. If the insolvency practitioner agrees that the company is not viable, he or she will agree to act as the nominated liquidator.
2. The directors of the company must then inform the members (shareholders) that the liquidation route has been chosen. The members then nominate the insolvency practitioner at a shareholders meeting.
3. The insolvency practitioner collates a list of all the company s creditors and calls a creditors meeting (commonly known as a section 98 meeting). A notice of the section 98 meeting must be advertised in the London Gazette and local newspapers.
4. A liquidator is appointed by the creditors prior to the meeting. Often, the appointed liquidator will be the insolvency practitioner who was nominated by directors and shareholders. However, this is not always the case. The company s bank will often want to install their own liquidator from a pre approved panel. If they are a major creditor and can out vote all others, they will be able to appoint the liquidator of their choice. Once appointed, the liquidator must act quickly to secure any company assets, for example by changing locks on company premises and insuring assets.
5. The creditors meeting is held 14 days after notice of the meeting has been given. At least one director acts as chairman of the meeting. The liquidator conducts the meeting. The creditors have an opportunity to question the directors about the cause of the failure of the company.
6. Any staff employed by the company will be made redundant. If the company has no funds to pay any staff wages due (which is often the case) the staff will be required to complete an RP1 to claim for statutory redundancy payment from the National Insurance Fund. This should be returned to the liquidator.
7. The liquidator will then realise the assets of the company normally through their sale. A valuer will be appointed to ensure the fair market price of the assets is understood by the liquidator. Anyone can offer to buy company assets from the liquidator including the shareholders or directors of the business. The liquidator has to accept the best offer received. Any monies realised will then be payed out to the creditors as per the statutory ranking of creditors.
8. An investigation of the conduct of the directors and officers of the company will then be undertaken and reported to the DTI by the liquidator. This is often known as the D Report . If the liquidator finds that the directors have acted wrongly or illegally, they may face disqualification and/or personal liability for company debts.
Once the procedures as described above have been completed, the company will be registered as dissolved at company s house and will no longer exist.
How much does this cost?
As you would expect, this is not done for free. For a small business, this will normally be around GBP7,000 payable to the insolvency practitioner. Ideally this fee would be funded from company cash or the sale of business assets. However, if such funds are not available, then the fee could be covered by the directors themselves.
Author Resource:
Derek Cooper is Managing Director of Cooper Matthews Limited, and a member of the Turnaround Management Association UK.
More information about Voluntary and other Liquidation processes at http://coopermatthews.com/voluntary-liquidation.html .
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