What Is Company Liquidation?

Last Updated: Mar 16, 2021
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Company Liquidation is a legal procedure that pertains to partnerships or companies wherein a liquidator is chosen to “wind up” the dealings of a business. When you first form a Limited Company  you have good intentions however sometimes it doesn’t always work out the way you had planned. In certain situations it is best to liquidate the company, and at the end of the process, the company no longer exists. The reason for liquidation is to make sure that all the affairs of the company have been treated and all its properties realised.

On completing this, the liquidator will apply in order to have the company disconnected from the register at the Companies House and dissolved, which implies it no longer exists.

Two types of liquidation are available: Voluntary Liquidation and Compulsory Liquidation

It is improbable for the Department to advise you on precise bankruptcy matters like whether a company needs to go into obligatory insolvency or look at options. You have to obtain independent advice on these issues from a certified accountant, solicitor or authorised bankruptcy consultant.

Who takes care of a compulsory (obligatory) liquidation?

The Official Receiver (OR) takes care of the early phases of an obligatory insolvency.

The Official Receiver will inform the creditors of the company and contributories (primarily investors) that the business is being closed down. Should there be noteworthy monies; a liquidation practitioner could be chosen as liquidator instead of the Official Receiver, at the initial meeting of investors or creditors.

The role of the liquidator is to understand the assets of the company, make the payments and charges that occur from the insolvency and portion out any residual assets amongst the creditors. In unusual occasions, an excess might be accessible for sharing to investors.

What is the OR?

The Official Receiver is an officer of the High Court and a government worker. In addition to managing cases, the Official Receiver has a responsibility to look into the dealings of people in insolvency and businesses in liquidation. The Official Receiver reports any proof of illegal offences and behaviour that may make an individual unworthy to be a director of the company to the insolvency Service’s Directors Disqualification Unit.

Compulsory liquidation

Compulsory liquidation is a bankruptcy process that relates to businesses and is established by a court instruction. A winding-up request is offered in the High Court, usually by a creditor, declaring that the business is indebted to an amount of money they are unable to pay. Less often, the business itself, its subscribers or directors may petition, as (in a few scenarios) an administrator, an administrative receiver, the Department, a clerk of petty sessions, the chief clerk (Crown Court), the Financial Services Authority, or the Official Receiver. A petition (request) can still be given, even if a business is by now in voluntary liquidation or managerial receivership.

A winding-up instruction can be arranged despite the company having no properties or argues the sum claimed. Any argument over sums unpaid has to be settled with the creditor(s) prior to making a winding-up order, as the consequences of the demand are serious.

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Who are the IPs (insolvency practitioners)?

Insolvency practitioners operate within the private sector, and are generally solicitors or accountants. They have to be certified by any of the Recognised Professional Bodies so as to operate as IPs. Several IPs are approved by RPBs. Insolvency practitioners operating as administrators, managerial receivers, or liquidators in creditors’ voluntary liquidations, give proof of unfit behaviour by the director in those dealings to The Directors Disqualification Unit.

Under what scenarios is a winding-up directive made?

This order can be given should the business:

  • has not started to trade inside 12 months of its enlistment or has put on hold its dealings for a complete year
  • is an ‘old’ public company
  • unable to pay its arrears and ought to be closed as the Court agrees that this is justifiable
  • has made up their mind for it to be wound up by the High Court
  • has under two investors, apart from if it happens to be a plc by guarantee or shares
  • enrolled as a public limited company over one year earlier – however has not been issued yet with a trading document

Article by

Jody Smith

A content and media expert, I have worked for 7 years alongside start-ups and small businesses to effectively promote their brands through blogs, social media and content marketing strategies.

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