FAQ

Frequently Asked Questions

Here is a list of our most frequent FAQ

• What is Liquidation ?
• What types of liquidations are available ?
• When are the different types of liquidation used ?
• What happens when a company is in liquidation ?
• Who can be liquidator ?
• Who appoints the liquidator ?
• Who can take the company into liquidation ?
• What is the most common method of liquidation ?
• What is a Members Voluntary Liquidation ?
• What is a Compulsory Liquidation (Court) ?
• What is a Creditors Voluntary Liquidation ?
• What are the Liquidator’s duties?
• Can I buy back company assets?
• How long does the Company Liquidation process last?
• What are my responsibilities as a director?
• Can I set up another company with the same name (Phoenix Company)?
• Can I be appointed as a director of another company if my company is in liquidation?
• We have large tax losses – will we lose them in a CVL?
• What action could lead to the disqualification of the directors?
• What are the Liquidator’s duties?

What is Liquidation ?

A company is a legal entity and it is a different legal person from it directors and shareholders. A company “dies” when it is dissolved and is no longer on the register of companies. The most important method of dissolving a company is through a liquidation. A liquidation is final and the company will not be in existence after the liquidation comes to an end. Top of Page

What types of liquidations are available ?

There are three types of liquidation available

• Members/Shareholders voluntary liquidation (MVL)(More info click here)
• Creditors voluntary liquidation (CVL)(More info click here)
• Compulsory Liquidation (More info click here)

The shareholders voluntary liquidation is where a company goes into liquidation but it expects to pay all its creditors, employees, taxes and also pay the shareholders part, all or more than their ordinary capital. An insolvency practitioner is appointed by the members over the affairs of the company as liquidator. The creditors voluntary liquidation is where a company is insolvent i.e. it cannot pay its debts as and when they fall due and is forced into liquidation. An insolvency practitioner is appointed liquidator by the members/creditors. A Compulsory Liquidation is where a company is forced into liquidation by one of its creditors (for not payment of debts) or the Secretary of State appoints a liquidator over the affairs of the company. Top of Page

When are the different types of liquidation used ?

The member/shareholders liquidation (where all creditors will be paid in full) is used generally to re-organise assets, group of companies, or to release capital. International Corporations have thousands of companies that have been created to deal with certain business. If that part of their business has been re-organised the company that owned it has to go. A members liquidation is the normal way of restructuring companies, assets etc. The creditors liquidation (where a company is insolvent) is generally forced upon the company as it cannot continue to trade either because the directors believe that they cannot continue. Top of Page

What happens when a company is in liquidation ?

A company is in liquidation when a liquidator is appointed over the affairs of the company. The appointment of the liquidator has the effect of removing the directors from office and the liquidator is the authorised person who can deal with the assets, liabilities, bank account and employees of the company. After the appointment of the liquidator the directors cannot bind the company. Only the liquidator and the persons specifically authorised by him can bind the company. Top of Page

Who can be liquidator ?

The Insolvency Act 1986 specifies that a person in order to be a liquidator has to be authorised by the Department of Trade and Industry (DTI). The authorisation process however is handled mainly by the Accountancy and Legal Bodies (Institute of Chartered Accountants, Law Society, Association of Certified Accountants etc.). The liquidator must have suitable indemnity (insurance cover) and must follow ethical, technical and other recommendations adopted by his Professional Body, or by the DTI. There are currently about 2000 Insolvency Professionals who can be appointed as liquidators. Top of Page

Who appoints the liquidator ?

The liquidator is appointed by the following persons.

• Member/shareholders of the company
• Creditors of the company
• The Secretary of State

In the creditors liquidation where a liquidator was appointed by the members and the creditors appointed a different liquidator in a subsequent meeting the creditors liquidator has precedence over the members liquidator. Top of Page

Who can take the company into liquidation ?

A company can go into liquidation by the members of the company, the creditors of the company, or by the DTI. Top of Page

What is the most common method of liquidation ?

With the introduction of the Insolvency Act 1986 the most common method of liquidation is the voluntary liquidation either member or creditors. Top of Page

What is a Members Voluntary Liquidation ?

A members voluntary liquidation implies that the shareholders would get their capital or the assets that the company owns will be disposed. This has taxation implications.(Income Tax and Capital Gains Tax) Professional advice is therefore required from your accountant regarding the tax position of the company and the tax position of the individual shareholders. Top of Page

What is a Compulsory Liquidation (Court) ?

Where a creditor proceeds against a company to realise his debt and the company is unable to pay its debt the company is would up by the court. The creditor must be owed more than £750 and he must have given 21 days notice to the company through a statutory demand. Click here for more information If the company is wound up by the court the liquidator is the Official Receiver a government employee. If the company has assets the Official receiver calls for a creditors meeting at which meeting an Insolvency Practitioner is appointed liquidator, to realise the assets and then distribute the proceeds to the creditors. Top of Page

What is a Creditors Voluntary Liquidation ?

A creditors voluntary liquidation is a liquidation where the company is insolvent i.e. it can not pay its creditorsClick here for more information. The directors pass a resolution that the company can not continue to trade and call for a members and creditors meetings to be held. The meetings decide upon the liquidator, liquidation committee and other relevant matters specific to the company, and the company goes into liquidation. The documents required to be produced at the members and creditors meetings are the Statement of Affairs (detailing assets and liabilities), A deficiency account, Statutory information, and history of the company with an explanation of the deficiency and the reasons for failure. The creditors can request further explanations if they so wish. In most cases the directors are assisted by an Insolvency Practitioner in preparing the above statements and generally organises the meeting, letters, notices, advertising, etc. Top of Page

What are the Liquidator’s duties?

The liquidator has the task of realising (selling) all the assets at market value and the proceeds deposited in a designated trust account. The liquidator will consider the claims of the creditors and following the deduction of fees, payment will be made on the agreed claims in the order of priority. The liquidator will ensure that all contracts or disputes are completed or brought to a conclusion. Top of Page

Can I buy back company assets?

Yes, the directors can make an offer to buy back assets of a company in Liquidation. Top of Page

How long does the Company Liquidation process last?

It depends on the amount of assets to realise and paperwork required, but generally between 4 – 12 months.Click here for more information Top of Page

What are my responsibilities as a director?

Directors have a duty to both the company and to assist the Liquidator throughout the process. All books and records must be delivered up to Liquidator on appointment. Top of Page

Can I set up another company with the same name (Phoenix Company)?

Yes, this is known as a Phoenix Company but there are certain conditions that must be fulfilled in accordance with section 216 and 217 Insolvency Act 1986. Liquidation Made Easy will help you through this process. Click here for more information Top of Page

Can I be appointed as a director of another company if my company is in liquidation?

Yes. This is not a problem. Top of Page

What will happen to the employees?

Any employees at the date of the winding – up-order would be dismissed. They would be entitled to claim monies due to them from the Redundancy Payments Office. Once the appropriate forms have been submitted to the liquidator these are sent to the appropriate Redundancy Payments Office and a claim is made from the National Insurance Fund. Top of Page

We have large tax losses – will we lose them in a CVL?

A: Yes. Top of Page

What action could lead to the disqualification of the directors?

• trading whilst knowing that the company was insolvent;
• paying certain creditors in preference to others. This can include paying monies into the bank account to eradicate an unsecured overdraft;
• taking deposits knowing that there was no chance of fulfilling the order; incorporating a phoenix company and utilising the same or similar name to that of the liquidated company;
• placing assets out of the reach of creditors;
• allowing transactions at an undervalue (i.e. selling assets at a value which is lower than that which could be achieved on the market);
• not maintaining adequate books and records; and
• not filing accounts.

Top of Page

What are the Liquidator’s duties?

The liquidator has the task of realising (selling) all the assets at market value and the proceeds deposited in a designated trust account. The liquidator will consider the claims of the creditors and following the deduction of fees, payment will be made on the agreed claims in the order of priority. The liquidator will ensure that all contracts or disputes are completed or brought to a conclusion. Top of Page