How to Liquidate a Limited Company
There are several important aspects to consider if you liquidate your limited company. See how liquidation works, be it compulsory or voluntary, and the role of a director and a liquidator.
WINDING UP A LIMITED COMPANY: There are specific procedures to follow if you choose to liquidate a company yourself.
Liquidated companies get removed, also called 'struck off', from the register at Companies House.
From then on, the company stops trading as a business and no longer employs people.
In simple terms, the business would then cease to exist. As a rule, the business assets get sold to pay off any debts when you are liquidating a limited company.
If there is any money left, it would go to the shareholders. But, you cannot access the company bank account without a validation order.
Shareholders must share the money before the company gets struck off the register. Otherwise, it those funds would go to the state. You would need to restore a dissolved company to claim back that money after it got removed.
Types of Company Liquidation Process
- Creditors' Voluntary Liquidation: CVL means the company is unable to pay its debts. It also means the creditors get involved if you liquidate your limited company (see below).
- Compulsory Liquidation: This also means the company cannot pay its debts. But, in this case you would apply to the courts to get it liquidated.
- Members' Voluntary Liquidation: MVL means the company is solvent and can pay its debts. Even so, for some other reason you have decided to close the company.
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Note: In some cases, creditors can force a limited company unable to pay its debts into liquidation.
Arranging Liquidation of a Company with Creditors
A company director can make a proposal to stop trading and get liquidated. In this case the company would get 'wound up' if either:
- Enough of the shareholders agree to liquidation.
- The company is insolvent and unable to pay its debts.
Getting the Shareholders' Agreement
You must get an agreement from the majority of the shareholders to wind up a company. That means calling a meeting of all the shareholders and asking them to cast a vote.
By value of shares, 75% of the shareholders must agree to the winding-up process. This is the only way to pass a company 'winding-up resolution'. Following a successful resolution, there are 3 important steps to follow:
- You must appoint an authorised insolvency practitioner to act as a liquidator. They will take charge and finish the process for liquidating a company.
- Send the results of the winding-up resolution to Companies House within 15 days.
- Advertise the company resolution in The Gazette Official Public Record within 14 days.
Note: When you liquidate a business yourself, the role and responsibilities of a company director change after appointing a liquidator.
What does a Liquidator do?
The role of the liquidator is acting as an authorised insolvency practitioner. A liquidator is the official receiver who conducts the company liquidation process.
Once liquidators get appointed they take over the control of the business. That means when you are closing down a limited company the official receiver will:
- Settle any outstanding contracts or legal disputes involving the business.
- Keep the relevant authorities informed and meet any administration deadlines for paperwork.
- Try to sell any company assets of value and use the money to pay off its creditors.
- Keep creditors updated and informed involving them in decisions where relevant or necessary.
- Pay off the final VAT bill for the company and its liquidation costs.
- Conduct an interview with the company directors. Their role includes making a report explaining why the business got wound up.
- Ensure the company gets removed from the companies register.
Note: A liquidator will act for the interest of the creditors in a creditors' voluntary liquidation - not the directors.
ALSO IN THIS SECTION
Apply to the Court: How a company director can ask the court for a compulsory liquidation order.
Directors after Liquidation: Find out what happens to directors when a liquidator is appointed.
Shareholders' Voluntary Liquidation: MVL is a members' agreement to liquidate a solvent company.
How to Liquidate a Company Yourself in the United Kingdom