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What Happens When A Company Goes Into Voluntary Liquidation?

Person filling out bankruptcy petition paperwork

What Happens When A Company Goes Into Voluntary Liquidation?

It can be extremely difficult when a company needs to cease trading. Its owners can evaluate whether a business might need to enter voluntary liquidation by asking two key questions: Does the company have the resources to pay its debts when they fall due? Do the company’s liabilities exceed its assets?

If the company cannot pay its debts, voluntary liquidation may be the only available path. If the company’s liabilities exceed its assets, it is insolvent and may need to go into liquidation.

As well as the practical and technical considerations that company directors will need to make, there are the difficult emotional decisions to be made. For this reason, many people find themselves unsure where to start when they decide that their company should enter voluntary liquidation.

In most cases, it is best to speak to an expert insolvency practitioner for advice on whether this is the right step for your business – the company’s board of directors will also need to appoint a practitioner to support you through the process, so it can be useful to start here.

The First Step: Collecting Information

The first stage once the process begins is for the directors to formally decide that the business must enter liquidation. This can be for any number of reasons, including an inability to pay off bounce back loans, or other difficulties that can cause debts to mount.

From this point, it is vital to begin gathering information from the directors and other key members of staff, including details of the company’s assets, a full set of accounts, information about all employees and any items that are on lease or hire purchase, along with a complete list of creditors.

For these purposes, company assets will include physical assets, stock, work-in-progress and any debtors. Usually, this information will be gathered by a licensed insolvency practitioner and compiled with information from the company’s statutory register. This will be put into a report on the company’s situation that will be sent to creditors.

At the same time, the company will cease to trade and make all employees redundant. Any concerns about outstanding wages, unpaid holiday pay, and redundancy payments can usually be managed by the insolvency practitioner.

Despite these redundancies, the directors will remain in their positions and must not take any action that would devalue the company’s assets or worsen the position of creditors, including ordering goods or services that they know cannot be paid for.

Next Steps: Working With Creditors

Usually, the company’s directors will appoint an Insolvency Practitioner to manage the process. However, the creditors must meet and ratify the shareholders nomination for liquidator before it can go ahead.

The report will be shared with the creditors at this meeting, and if a liquidator has been appointed, the creditors will have an opportunity to ratify this decision. Otherwise, they may appoint a liquidator of their own choosing. The appointed insolvency practitioner should act as a liaison between the business and its creditors, responding to any enquiries as necessary.

An insolvency practitioner can also advise the company’s directors. From this point, the liquidation can unfold in many different ways according to the specific circumstances of the company. Due to this, it can be difficult to provide more guidance, but you will benefit from the expert advice from an insolvency practitioner. The UK government’s website also has more information about the options available when a company becomes insolvent.

Wrapping Up

It can be an extremely difficult process for your company to enter voluntary liquidation, but a professional advisor can help not only with the practical considerations, but with the emotionally difficult decisions you may have to make.

For this reason, it is important to choose carefully the person in whom you will put your trust to manage a voluntary liquidation effectively. By doing so, you can ensure that the process runs as smoothly and efficiently as possible.

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