Company Liquidation Process and Procedure

Unless you have someone to help alleviate the worry, the process of liquidating a company’s assets can be a very stressful period for the director and the creditors alike. The first step is obviously being aware of what the process and procedure for liquidation entails. The problem is there is no one size fits all answer to this problem although knowing whether the liquidation is voluntary and whether the company is solvent or not can help come up with an equitable solution. The liquidation procedure is handled differently when it is voluntary and when it is involuntary. The following is just an overview of the typical liquidation process;

The petition for a compulsory liquidation will begin with legal proceedings. There are events that must occur before petitioning the court, but first it is necessary to understand the different types of liquidation;

1. Compulsory Liquidation

When one of the creditors petitions the court to liquidate the company because they believe it to be insolvent and incapable of setting its debts, it is a compulsory liquidation.

2.Voluntary Liquidation

There are two different forms of voluntary liquidation; when a company is solvent and able to pay its debts, a Members Voluntary Liquidation (MVL) can be initiated. There is no court involvement in an MVL.

On the other hand, the Creditors Voluntary Liquidation is a process that the directors, rather than the creditors initiate when the company is unable to pay its debt. The Creditors Voluntary Liquidation (CVL) is often requested before a compulsory liquidation can be filed with the courts.

As you can already guess by now, the liquidation process will depend on the type of liquidation initiated. The key point to remember though is that the CVL and MVL do not require court involvement and a compulsory liquidation begins with a court petition.

What Happens before a Court is Petitioned

It is also important to understand the steps that must take place before the court is petitioned. Again, it is worth pointing out that a court petition will only be presented if the liquidation is a compulsory liquidation. However, even in a voluntary liquidation, the Insolvency Act of 1986 lays out the exact steps a company must take to complete the liquidation process.

To begin with, meetings with the directors and the shareholders must be held and there are a series of advertisements that must be placed with the London Gazette. Companies are advised to hire a solicitor to present the petition to the court, although an Insolvency Practitioner (IP) can also be contracted to administer the process from beginning to end. An IP is particularly helpful when the creditors appoint the liquidator.

Here’s a credible timeline of what happens in a voluntary winding up petition;

• Directors must first meet to pass a resolution to convene a general meeting to discuss the liquidation of the company as per the Companies Act 2006. There must also be a meeting of the company’s directors.
• Once there is a resolution that all parties agree with, an advertisement must be placed in the Gazette within 14 days.
• Creditors must be notified at least 7 days before the meeting
• A statement of affairs must be prepared by the directors and presented at the meeting
• A general meeting of members is help and a resolution to wind up passed
• A director is chosen to represent the group at the creditor’s meeting.

Company liquidators will be appointed and the directors will be required to cooperate with the liquidator’s every request. It is therefore very important that everything be handled in an open and honest manner to avoid dragging out the process.