A creditors voluntary liquidation is a procedure in which the company’s directors choose to voluntarily bring the business to an end by appointing a liquidator to liquidate all of its assets. This differs from a compulsory liquidation, which is forced upon an insolvent company via a winding up order made by the Court. This method of liquidation does not involve the Court or the Official Receiver.

Advantages

  • By voluntarily choosing to liquidate the company, you can avoid being petitioned through the courts and be able to demonstrate that liquidation was a company choice, rather than a hostile creditor action. You take the procedure into your own hands and have more control over appointing an IP you are comfortable with.
  • Any legal action against the company is stopped on liquidation. As long as you have no personal liability for a company debt, creditors will be unable to take action against you.
  • Hire purchase and lease agreements are generally terminated at the date of liquidation, meaning that no further payments need to be made.
  • Members of staff will be able to claim redundancy pay from the sale of company assets, or if these are not sufficient they can claim from the National Insurance Fund.
  • Minimises the risk of wrongful trading.
  • Company directors will need to fund the costs of arranging a Statement of Affairs and holding a creditors meeting, but apart from those upfront costs there may be little to fund, as professional fees are paid from the sale of company assets.

Disadvantages

  • The company will close down and stop trading. All existing assets will be sold off in order to provide a dividend to creditors where possible, and for the insolvency practitioner to collect their fee.
  • On liquidation, the appointed insolvency practitioner has to investigate the affairs of the company and the directors conduct, sending a report on the directors conduct to the Insolvency Service, an executive agency of the Department for Business Innovation and Skills
    as part of this procedure, detailing the conduct of company directors leading up to the insolvency.
  • Each director will be held responsible for repayment of their directors current account should it be overdrawn.

Contact us

Specific advice should be obtained before taking action, or refraining from taking action, on any of the issues covered above.

For further information, please contact one of our Client Services Team who will be able to assist you.