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Liquidating your company: How it works and when to wind up

“Liquidation”, “insolvency”, “bankruptcy”, “winding up”. These are terms that we hear bandied about quite frequently, but often there is little clarity as to what exactly these terms mean, and what they entail for a business or individual in a practical sense. Today, we’re going to be clearing up any uncertainty you may have surrounding the process of “liquidation”. If your company is no longer financially viable, liquidation may be something you have to consider, so we’re keen to dispel any confusion around what exactly it means for you to take this option.

What is liquidation, exactly?

Liquidation is the legal process in which a liquidator is appointed to take on the responsibility of winding up a limited company. Once this process is complete, the company no longer exists.

The liquidator is responsible for managing a number of important affairs that must be taken care of before a company can be fully closed, these include:

  • Collecting any money owed to the company
  • Making any payments to creditors or returning capital to shareholders
  • Making sure that all and any company contracts are completed, transferred or terminated, including employee contracts
  • Settling any legal disputes
  • Taking care of the sales of any assets

Once all of these things have been taken care of, the liquidator can then apply to the Companies House to have the business removed from the register.

Additionally, there are, in fact, three different types of liquidation, and which type applies to you depends on the circumstances of your company:

  1. Members voluntary liquidation. In this case, the shareholders choose to liquidate and there are enough assets to pay any creditors. Under these circumstances, the company is deemed “solvent”.
  2. Creditors voluntary liquidation. Here, the shareholders make the choice to liquidate however there are not enough assets to pay off all debts. In this case, the company is “insolvent”.
  3. Compulsory liquidation. This is when the court orders for the company to be liquidated.

A few important things to consider…

  • It’s vital that you seek your own legal and/or financial advice so that you have all the facts about winding up your company and know exactly which options are available to you. For this, it’s a good idea to contact a reputable insolvency practitioner.
  • If you’re looking to find out more before you get in touch with anyone, firms such as Connect Insolvency of Newcastle Upon Tyne offer a whole host of helpful guides which provide more detailed information about various possible aspects of liquidation, depending on your circumstances, such as administration or bankruptcy.
  • Going into liquidation means that your powers, as a company director, will cease to exist, and you’ll no longer be able to access any bank accounts associated to your business. It’s therefore essential that the liquidation process is carried out in full knowledge of all the facts and implications.

When exactly is the right time to liquidate?

Liquidating your company more or less means turning assets into cash. You’ll only need to do this if you have a variety of debts or loans that you are otherwise unable to pay. If you’ve ran out of funds, liquidating could be the right choice for you.

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