What Is The Process Of Dissolving A Company?

Dissolving A Company


‘Dissolving a company’ or ‘company liquidation’ is a formal way of bringing a business to a complete end. All of its assets are liquidated and the proceeds from its sale is used to pay off company debts. There are two main types of liquidations for insolvent companies:



Compulsory Liquidation

Forcing your company into liquidation is the very last step a creditor can take when it comes to chasing for continual non-payment of company debt and is often the conclusion of a lengthy process of debt recovery. It is not an outcome that would come out of the blue; moreover, it is the inevitable conclusion of a company failing to meet its liabilities and thus becoming insolvent.

Creditor's Voluntary Liquidation (CVL)

A formal liquidation process which brings about the end of an insolvent company. A CVL can only be entered into under the guidance of an appointed liquidator who must be a licensed insolvency practitioner.


What Is A Creditor’s Voluntary Liquidation (CVL)

The most common type of liquidation procedure is a Creditor’s Voluntary Liquidation (CVL). Outstanding creditors will be dealt with as part of the process which will give the distressed company directors a fresh start away from the stresses associated with a company in liquidation.

A company can only be placed into a CVL under the guidance of a licensed insolvency practitioner. They will start by assessing your company's financial situation and advise whether liquidation is an appropriate course of action. If liquidation is deemed to be the appropriate course of action, you will appoint an insolvency practitioner who will begin the process of placing your company into a CVL. You can take the first step today by completing a contact form.

However, it is important to have all the facts so read on to learn more about company liquidation and the steps to take when dissolving a company.

When is A Company Considered Insolvent?

There are two main tests to determine whether a company is insolvent:

The Cash Flow Test - Where a company cannot afford to meet its liabilities

And

The Balance Sheet Test - Where a company will have liabilities at such a level which outweigh its assets.

If you believe your company to be insolvent, or believe that it will become insolvent, steps must be taken to mitigate the impact this will have on your outstanding creditors.


What Is The Process Of Dissolving A Company?

With Debt-Helpline, the CVL process will be handled from start to finish by an appointed insolvency practitioner. We will take on a number of specific roles and responsibilities during the company liquidation which range from identifying and valuing company assets, liaising with outstanding creditors to whom your company owes debts, to ensuring the company is brought to an end and its name removed from the register at Companies House; the company will no longer exist as a legal entity when the process comes to an end.

All Trading must cease when dissolving a company and all employees must be made redundant. Any company debts which remain will be written off, unless secured with a personal guarantee (PG). If PGs were given, these will emerge at the point of liquidation. The responsibility for repaying them will fall to the individual who provided the PG which is typically the company director.

Why Would I Choose A CVL?

In some cases a business is well beyond rescue and the best course of action is company liquidation. This allows the directors to move on, and the creditors to recover as much money as possible.

As the director of a company in liquidation, you have certain legal responsibilities:

  • Once you know the business is to enter administration, you must endeavour to protect outstanding creditors which means placing their interests above your own and those of your fellow directors or shareholders.
  • You must not engage in any activity which could worsen the position of creditors or increase their losses. This might mean you must cease trading immediately, although not when it may be determined that continuing to trade an insolvent company may be beneficial to creditors.
  • This is an extremely complex area, however, and you are strongly advised to consult a Debt-Helpline insolvency practitioner as soon you know your company is heading towards insolvency.

Placing a struggling company into liquidation, can come as a huge sense of relief. Following a company entering a CVL, any company debts (unless covered by a PG) will be written off. This means creditors will not be able to chase you personally for the money outstanding.


The Process

Should your business be beyond rescue, or the directors and shareholders choose to close the company permanently, a CVL is likely to be the most appropriate course of action. Here is an outline of the process:

1.Decision To Liquidate

At least 75% of shareholders must resolve to close the Company. Once a decision on company liquidation has been made, a meeting of the board or directors will be held. A sole director will resolve to convene a general meeting of shareholders and a decision of creditors to place the distressed company into liquidation (“Decision Date”).

This is when the directors formally instruct a licensed Insolvency Practitioner to oversee the Liquidation process. They will also draft all relevant documentation to commence the process.

2.Notice To Shareholders And Creditors

On deciding to commence Company Liquidation, shareholders and creditors will be notified of the ‘general meeting’ and ‘Decision Date’ respectively. Leading up to the Decision Date (of Liquidation), creditors will be issued with an Estimated Statement of Affairs setting out the financial position of the company, detailing its assets and liabilities. It will provide estimated realisable values of company assets and an estimated deficiency to creditors.

A report is also prepared providing a brief trading history, extracts from recent accounts and a deficiency account, detailing financial movements and assumed financial movements between the date of the last accounts and the date of liquidation. This must all be made available to creditors the day before the Decision Date, at the latest.

3.Liquidation Commences

The general meeting of shareholders and Decision Date of Creditors usually takes place on the same day. A physical creditors’ meeting is not always needed unless requested by at least 10% of creditors in value, 10% of creditors in number, or 10 creditors.

Liquidation commences at 23:59 on the Decision Date. This can be conducted remotely with the director(s), which removes an element of stress from the process.

4.During Liquidation

During company liquidation your debt helpline Insolvency Practitioner will continue to liaise with creditors and resolve any issues.

All company assets will be independently valued, marketed and sold as appropriate. Directors of the distressed company might purchase assets of the company, as long as this sale is negotiated through the Insolvency Practitioner.

Your Insolvency Practitioner will also be responsible for collecting outstanding book debts, handling employee claims, issuing the necessary reports to government agencies, and distributing available funds to creditors. Secured creditors with a fixed charge are first in line for payment, then preferential creditors (including staff wages), and then secured creditors with a floating charge.

Unsecured creditors, such as suppliers, customers, and HMRC are next in line, although at this late stage there is unlikely to be remaining funds to allow for significant.

After The CVL

After completion of the CVL, the company will be removed from the register at Companies House. Any liabilities which remain unpaid will be written off, unless they were personally guaranteed.

During liquidation the liquidator will have investigated any actions taken by the directors (and former directors within the last 3 years). If they did not fulfil their fiduciary duties while knowingly insolvent, or conducted transactions which were to the detriment of creditors and challengeable, they may be found guilty of wrongful trading, fraudulent trading or misfeasance resulting in them being held personally liable for some or all of the company’s debts. They could even be disqualified from acting as director of a company for up to 15 years.


How Debt Helpline Can Help

Debt Helpline has a team of professional company administration experts who can talk you through the entire liquidation process and support you every step of the way. To arrange an initial consultation with one of our specialists, call the team on 0333 300 3490 today or fill out our contact form.

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