What is the liquidation process

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If you have determined it is time to close your company either because it is bankrupt and cannot continue or you want to stop trading for some other reason then you need to go through a liquidation process.

The most common form of liquidation is creditors voluntary liquidation (CVL). A creditors voluntary liquidation is used where the company is unable to pay its creditors and the company is under serious pressure. The board does not think it can be profitable or viable to continue. To undertake a CVL, the following steps will be undertaken:

The board of directors must first agree to liquidate the company. Once agreed an insolvency practitioner must be found. He or she will review the current financial position, future prospects and director’s risk. If the insolvency practitioner agrees that the company is not viable, they will agree to act as the nominated liquidator.
The directors must inform the shareholders that liquidation has been chosen and then the nomination of the insolvency practitioner must be approved at a shareholders meeting.
The insolvency practitioner collates a list of all the company’s creditors and calls a creditors meeting (commonly known as a section 98 meeting). The notice of meeting must be advertised in the London Gazette and the local newspapers as well as all creditors being informed.
A liquidator is appointed by the creditors prior to the meeting. Often, the appointed liquidator will be the insolvency practitioner who was nominated by directors and shareholders. However, this is not always the case. The company’s bank will often want to install their own liquidator from a pre-approved panel. If they are a major creditor and can out vote all others, they will be able to appoint the liquidator of their choice. Once appointed, the liquidator must act quickly to secure any company assets, for example by changing locks on company premises and insuring assets.
The creditors meeting is held 14 days after notice of the meeting has been given. At least one director acts as chairman of the meeting. The liquidator conducts the meeting. The creditors have an opportunity to question the directors about the cause of the failure of the company.
Any staff employed by the company will be made redundant. If the company has no funds to pay any staff wages due (which is often the case) the staff will be required to complete an RP1 to claim for statutory redundancy payment from the National Insurance Fund. This should be returned to the liquidator.
The liquidator will then look to realise the maximum value of the company assets. A valuer will be appointed to ensure the fair market price of the assets is understood by the liquidator. Anyone can offer to buy company assets from the liquidator including the shareholders or directors of the business. The liquidator has to accept the best offer received. Payment will then be made to any creditors as per the statutory ranking of creditors.
The liquidator must investigate the directors of the company and report this to the DTI. This is often known as the “D Report”. If the liquidator finds that the directors have acted wrongly or illegally, they may face disqualification and may also be made personally liable for company debts.

Once this process is complete the company is registered as dissolved at companies house and will cease to exist.

How much does this cost?

As you would expect, this is not done for free. For a small business, this will normally be around GBP7,000 payable to the insolvency practitioner. Ideally this fee would be funded from company cash or the sale of business assets. However, if such funds are not available, then the fee could be covered by the directors themselves.

Derek Cooper is Managing Director of Cooper Matthews Limited, and a member of the Turnaround Management Association UK.

More information about Voluntary and other Liquidation processes at http://coopermatthews.com/voluntary-liquidation.html.

Cooper Matthews are experts in Business Refinancing and Business Recovery Services Advice providing practical insolvency advice for businesses with financial problems to turn your business around. They have significant experience in working with small to medium sized businesses.

Derek’s experience of both corporate insolvency and business management puts him in a position to be able to understand the challenges facing businesses in today’s economic climate.

Article Source:http://www.articlesbase.com/credit-articles/what-is-the-liquidation-process-1237359.html

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