How do I liquidate my company?

There are two voluntary liquidation procedures, with the right one for your company depending on whether it can repay its debts. 

• Members’ Voluntary Liquidation (MVL) – If your company is debt-free or can repay all the money it owes before it closes, it is said to be solvent. In that case, you can use an MVL to close it down.
  
• Creditors’ Voluntary Liquidation (CVL) –  if your company has debts it cannot afford to pay even if it sells its assets, it’s insolvent, and a CVL is the right approach.
  

If you want to liquidate your company, the first step is to contact a licensed Insolvency Practitioner. They are qualified to give advice and administer liquidation processes in the UK. First, they’ll assess your financial situation and explore your options with you, including whether it’s possible to rescue the company. If liquidation is the most appropriate outcome, they can handle the entire process on your behalf. 

When the liquidation begins, you will no longer control your company, although the liquidator may ask you to provide information about the company’s assets, records and other paperwork. If the company is insolvent and you enter a Creditors’ Voluntary Liquidation, you must also attend an interview with the liquidator if they ask.

Whether you decide to liquidate your company via a solvent MVL or insolvent CVL, the purpose is similar. The main difference is who benefits from the sale of the company’s assets. 

Creditors Voluntary Liquidation 

The liquidator will use the proceeds from the sale of assets to repay the company’s creditors (parties it owes money to) in a strict order. By definition, as the company is insolvent, it cannot pay all its debts in full. That means the creditors further down the repayment hierarchy may receive very little of the money they are owed.

Liability for those outstanding debts will not pass to the shareholders or directors as their personal finances and the company’s finances are legally separate. Instead, the debts will be written off and the company will be removed from the official register. 

Members’ Voluntary Liquidation  

In this case, the liquidator sells the company assets and uses the proceeds and the retained profits to pay any creditors before distributing the rest among the shareholders. The shareholders pay Capital Gains Tax on the money they receive. They may also be eligible to claim Business Asset Disposal Relief, which brings the tax rate down to just 10%. The company will then be struck off and will cease to exist.

Members’ Voluntary Liquidation

After a Members’ Voluntary Liquidation, you can do as you please, whether you want to retire, start a new career or open a new business. The only restriction (according to Capital Gains Tax Targeted Anti Avoidance Rules) is that you cannot open a new business in the same trade for at least two years. That prevents limited companies from being liquidated solely for tax purposes.

Creditors’ Voluntary Liquidation

There are a few more things to consider after a Creditors’ Voluntary Liquidation: 

Director conduct

After the liquidation process, the liquidator will investigate the conduct of the directors leading up to and during the company’s insolvency. If they find examples of misconduct or wrongful trading, you could be made personally liable to repay some or all of the company’s debts. You could also be disqualified from acting as a company director for up to 15 years, and in cases of fraudulent trading, you could even receive a prison sentence.

Personal guarantees    

If you have signed a personal guarantee for borrowing the company cannot repay, on liquidation, liability for the debt will pass from the company to you. The creditor will then be able to pursue you personally for the repayment, which could put your personal assets at risk. 

Starting a new company  

As long as you do not receive a director disqualification, there’s no reason why you can’t start a new company after a CVL. However, there are restrictions around the new company’s name. You cannot start a new business with the same or a similar name as the liquidated company. If the liquidated company had unpaid tax debts, HMRC may also insist that you pay a VAT or PAYE deposit security deposit for the new company.

Both solvent and insolvent liquidations require the assistance of an Insolvency Practitioner, and they have professional fees. Where possible, the company will pay these fees from the money raised by the sale of assets. 

Members’ Voluntary Liquidation

In a Members’ Voluntary Liquidation, where the company is solvent and has sufficient funds, the liquidator’s fees will be paid using retained profits or the proceeds from the sale of assets. The remaining funds will be distributed among the shareholders.

Creditors’ Voluntary Liquidation 

In a Creditors’ Voluntary Liquidation, the liquidator’s fee is usually paid from the funds raised by the sale of assets. If your company doesn’t have sufficient assets to cover the fee, it’s common for the directors to use their own funds. 

Many company directors are unaware that they may be entitled to redundancy pay following insolvent liquidation in the same way as an employee. That sum could be more than enough to cover the cost of liquidation.

At Scotland Liquidators, we can advise you on whether liquidation is the best option for your business and guide you seamlessly through the procedure. We can also help you with your director’s redundancy claim. Contact our team of licensed Insolvency Practitioners for a free, same-day consultation or arrange a meeting at one of our offices in Scotland.