The three types of liquidation available to companies

15 June 2014

  1. Members/shareholders Voluntary Liquidation (MVL) is used by a company that expects to pay all its creditors, employees, taxes and shareholders. An Insolvency Practitioner (IP) is appointed by the “members” over the affairs of the company as Liquidator. An MVL is generally used to re-organise assets, release capital or by a Group of companies to re-structure. Directors/Shareholders wishing to retire would use this exit strategy as well. An MVL has Tax implications (Income Tax and Capital Gains Tax) and professional advice as to the Tax position of both the company and the individual shareholders should be sought.
  2. Creditors Voluntary liquidation (CVL) is used where the company is insolvent (i.e. It cannot pay its debts as and when they fall due – Take our simple Insolvency Test now) The Director/s believe they cannot continue (see Directors Responsibilities) hold a Board Meeting and pass a “Resolution” to appoint a Liquidator. A CVL is the most commonly used Liquidation. It is a quick and very powerful way to close a business and more importantly, deal with matters properly.
  3. Compulsory Liquidation (or compulsory winding up) is used when a court make an order for a company to be wound up (a winding-up order) on the petition of an appropriate person, normally a creditor ( for non payment of debt in excess of £750.00) or by The Secretary of State. Most Directors do not want to go down this route, as the Official Receiver (OR), appointed by the court, will investigate the companies’ affairs and the conduct of the Directors. If the company has assets the OR will call for a “creditors meeting” at which an IP will be appointed, to realise the assets and then distribute the proceeds to the creditors.

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