Liquidation of Companies

Companies may opt for a creditors voluntary liquidation CVL or may be forced by their creditors into winding up the company under a compulsory liquidation.

Companies that find themselves in a situation where they can not afford to pay existing creditors and administration can not be justified are generally insolvent.

General Company Liquidation Information

If you are thinking of liquidating your company then you should seek professional advice. There is also relevant legislation contained in the Companies Act of 1985 amended in 1989 and subsequent years and also the Insolvency Act 1986 and Insolvency Rules 1986.

So what is liquidation? Simply put, it means all of the assets of the company are liquidated so they may be sold. Cash is 100% liquid, stock can be sold fairly easily and fixed assets are the least liquid as they take time to sell. All trading is ceased and no more purchases or employment can take place.

An insolvency practitioner will be appointed and they must be authorised by a professional body such as the Chartered Association of Certified Accounts, The Insolvency Practitioners Association, The Law Society, ICAEW etc.

Voluntary Liquidation - Introduction

A voluntary liquidation arrangement may be a Member Voluntary Liquidation MVL whereby the directors declare insolvency or a Creditors Voluntary Liquidation CVL whereby the directors have not declared insolvency.

In a MVL the directors make a statutory declaration 5 weeks before a resolution is passed to wind the company up. The directors issue a report of the company's financial situation stating that the company can not pay its debts in full within one year of the winding up of the business. This statement must be published in the Gazette (a publication by HMSO published daily with various statutory announcements) within 14 days of the meeting to wind the company up.

In a creditors voluntary liquidation CVL agreement the company must pass a resolution by the directors with the creditors of the organisation with an appointed liquidator to wind up the company.

The voluntary agreement is agreed by the court with the creditors of the company to propose a composition in satisfaction of its debt or a scheme of arrangement of its affairs which has the agreement in place to settle debts with creditors in terms of the percentage they will receive and the timeline.

The CVL may be proposed by the administrator if the company administration

Compulsory Liquidation - Introduction

A compulsory liquidation is undertaken via a court order whereby the court appoint an official receiver who will appoint an insolvency practitioner as the liquidator at a meeting of the creditors. The company can also apply to the court.

Companies are regarded to not pay their debts if one creditor is owed more than £750 and presents a written demand in the prescribed form (statutory demand (Form 4.1)) to the company and the company fails to pay the debt, secure or agree a settlement of the debt to the creditor's reasonable satisfaction.

The company is dissolved 3 months after the application for dissolution is received by Companies House.

Liquidation Forms

The following forms must be completed and filed.

Notice of appointment of liquidator voluntary winding-up (members or creditors) Form 600, Statement of affairs in conversion from a members' voluntary to a creditors' voluntary liquidation Forms 4.18 and 4.20, Statement of affairs in a creditors' voluntary liquidation Forms 4.19 and 4.20, Liquidator's statement of receipts and payments form 4.68, Members' voluntary winding-up declaration of solvency embodying a statement of assets and liabilities form 4.70, Return of final meeting in a members' voluntary winding-up form 4.71, Return of final meeting in a creditors' voluntary winding-up form 4.72.

If sending forms by post (include a self addressed envelop if you want acknowledgement) to: The Liquidation Department, Companies House, Crown Way. Cardiff CF14 3UZ