If your limited company is experiencing cash flow problems and is struggling to survive financially. Then liquidation could be the most logical solution – particularly if you find yourself unable to repay creditors.
A limited company is considered a separate legal entity which means it will usually be responsible for its liquidation costs – and these can sometimes run into thousands of pounds.
But what happens if you or your company don’t have the funds to carry out the process? Here’s how you can liquidate your limited company with no assets or money.
What is the Limited Company Liquidation Process?
Liquidation may be the only viable course of action when a business finds itself in too much debt to recover through recovery procedures such as financing, company administration, or a Company Voluntary Arrangement (CVA).
Liquidation is the more intrusive and more costly process, which will essentially remove any authority of a director. So instead, all control of the process and the business concerns are overseen by an appointed Insolvency Practitioner (IP).
When your company is in liquidation, no legal proceedings can be taken against it. Providing you have no personal liability for your company’s debts, your creditors will be unable to take any further action against you.
A director who has previously liquidated a company can, in future engagements, be viewed as a higher investment risk, potentially affecting their ability to perform business in the future.
An insolvent company has two ways to carry out liquidation: a Creditors’ Voluntary Liquidation (CVL) and a Compulsory Liquidation.
What is a Creditors’ Voluntary Liquidation (CVL)?
A Creditors Voluntary Liquidation (CVL) is a formal procedure voluntarily implemented by the directors of a company deemed to be insolvent.
A CVL could be the only course of action if a company doesn’t have enough money to pay all its debts, and it is one of the most common ways for directors and shareholders to deal voluntarily with insolvency.
A CVL is typically started by directors, who agree to convene meetings of shareholders and creditors and discuss placing the company into liquidation.
Once this course of action has been agreed upon, the company’s directors will bring in an IP to deal with the CVL.
Once appointed by members and creditors, the IP has three main objectives:
- First, realising the assets of the company.
- Second, agreeing with the claims of creditors of the company.
- Third, investigating the affairs of the company and the directors’ conduct.
Finally, a CVL is appropriate when the company is deemed insolvent and does not appear viable, even after restructuring.
If you think your company might require a Creditors Voluntary Liquidation, contact the Future Strategy team now.
What is a Compulsory Liquidation?
Compulsory Liquidation is the process used by a creditor (someone who is owed money) to force an insolvent company into liquidation – in an effort to make it pay back that debt.
Sometimes known as Winding Up, Compulsory Liquidation is a procedure under the Insolvency Act and is usually led by a creditor pursuing the company for money.
A company’s insolvency usually is evident if it is unable to pay its creditors on time. But, first, the dissatisfied creditor will present an application to wind up the company.
It’s worth noting that even after the Compulsory Liquidation process has started, there may still be enough time to implement Creditors Voluntary Liquidation. However, this is initiated by the company’s directors rather than by its creditors.
Can I Liquidate My Limited Company for Free?
If you don’t have a way to pay for an IP, you could sell your company’s assets to raise the fees (providing you have assets to sell).
You may also be able to claim redundancy, provided you have registered on the PAYE scheme, and any redundancy money can then be used towards liquidation costs.
Doing this means you can essentially liquidate your limited company for free without having to worry about money coming out of your bank account.
If you do not have enough assets to sell, or redundancy money, to pay for the fees, then company liquidation in this way will not be possible.
How do I Liquidate My LTD Company When there Are No Assets or Funds?
There are two factors to consider when liquidating your company, both of which depend on whether or not you have debts to pay:
1. If your limited company DOES NOT have debts
If you wish to close down your limited company and don’t have any debts to creditors, you can dissolve it and take it off the Companies House register.
Once the notice is published in the Gazette by Companies House and three months have passed without any objections from creditors, the company is officially dissolved and ceases to exist.
2. If your limited company DOES have debts
Suppose your limited company has debts but no assets. In that case, you can use a process called Administrative Dissolution, which has the same outcome as a company liquidation but often costs much less.
All your creditors must be informed as well as all directors, shareholders, employees, and trustees of any pension fund. The company’s financial position explained to them; creditors should also be invited to petition for the winding-up of your limited company.
In addition, you must not take out any credit or loans while your company is insolvent, as you may be held personally liable for debts if found guilty of fraudulent or wrongful trading.
Ok, that’s it for this article looking at how to liquidate a company. We hope you found it helpful; please always feel free to contact us if you need more assistance.