It may be that your company cannot afford to trade anymore, or perhaps your customers no longer require your services. Maybe there is a new company in your market that you simply can’t compete against? Maybe your supplier has stopped selling your goods. Or maybe you just do not have the energy to continue, or it has just served its purpose. If your company can no longer trade and in worst case scenario, it may also be insolvent, then there are various different ways it can be closed down.
Liquidation
This is the process of ‘liquidating’ the remaining assets of the company, or in simpler terms, turning assets into cash.
The financial state of your company, depends on which type you take:
- Creditors Voluntary Liquidation: used when your company is insolvent. The directors start the process, prepare a statement of affairs and the creditors appoint an insolvency practitioner at the creditors meeting. This is usually the one brought in by the directors.
- Compulsory Liquidation: used when your company is insolvent. Creditors issue a winding up petition on the company, which is heard by a court who then appoints a liquidator. The appointed liquidator must then liquidate all remaining assets, before investigating the actions of the director.
- Members Voluntary Liquidation: used when a company is solvent. The same process is used as above; selling assets to turn to cash, yet the money is not used to pay creditors, but rather is distributed equally to the “members” otherwise known as shareholders.
Dissolution
Simply put, this is the end of a company’s life. The company is removed from the Companies House register and is no longer a legal entity. If your company can no longer trade then this can work, it’s a simple and cost-effective option BUT you cannot do this if your company is insolvent and has outstanding debts. There are certain requirements for dissolution. It is important to ensure your company is eligible.
Be aware though that a company that has been dissolved can be resurrected from the register and reinstated, so that an investigation can be done into the director’s conduct.
The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act has just been passed into law and it can be used to pursue existing and former directors for debts, such as bounce back loans, with the possibility of prosecution.
The act will prevent:
- False dissolution of companies to avoid investigation into the directors
- Using the dissolution of companies to shed liabilities and transfer assets to a new company
- The use of the company dissolution process as an alternative to formal insolvency proceedings, such as voluntary liquidation
You may be interested in: Managing Student Loans: A Guide for Young Adults