What is company dissolution, and what happens?

September 24, 2018 2:54 pm Published by

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So this is certainly not the most positive topic, but nonetheless something absolutely crucial to know and understand as a business owner. Always be prepared!

Primarily, there are two ways for which a company can fall into liquidation. These are either voluntarily or involuntarily. Basically, during the liquidation process the assets of the insolvent business and sold and the proceeds are used to pay back as many creditors as possible. Think of it a bit like an auction.

When looking at the process of liquidation, the specific steps to take will depend upon the type of liquidation, but generally the process involves the sale of all a company’s property and holdings, which then finishes with the full dissolution and closure of the company. Regardless of the type of liquidation in process, the end result will involve creditors being repaid as much as possible.

So what happens during compulsory liquidation?

A party will basically submit a winding up petition against another party, to have the insolvent company wound up in order to recover the outstanding debt. A director appointed within the insolvent company also has the right to legally request a petition to have the company wound up, but this process will likely be handled through a voluntary liquidation instead. Below is a listed criteria of common features for when a company may experience liquidation:

  • Taxes are owed
  • Total debts exceed the value of all assets
  • Unable to pay debts as and when they are due
  • Has failed to re-register as a public or private company correctly.

What happens during a voluntarily liquidation?

Generally speaking, this process is less stressful and potentially less problematic for the company involved. The procedure has essentially being pre-empted and planned out, and the directors and though involved being the company have use of an insolvency practitioner throughout the process.

The fundamental factor here though is that evidence showing the liquidation will provide the most appropriate out for the company’s creditors, then finding the liquidator to wind up the company is normally straight forward. Of course the liquidator may well reject the procedure if they establish that there are other options available and suggest a better course of action.

So why would you begin voluntary liquidation? Simply, a company will run out of options and the only viable plan is to do this. The company may be in a detrimental amount of debt and unable to recover via options such as administration, finances or a company voluntary arrangement (CVA).

By seeking the appointing of a liquidator to effectively take care of this process for you, then will conduct the following:

  • Take ownership and deal with any outstanding contracts
  • Dispensing information to creditors throughout the process
  • Removing the company from the register at Companies House
  • Interviewing directors as part of their investigations

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This post was written by Chris Beck