If your company has unfortunately fallen on hard times or you simply want to cease trading, then you as a company director can choose to liquidate your limited company (also referred to as ‘winding up’ your company). There are three methods in which you can do this yourself and in this article I will explain the steps behind each variation and which option is suitable for you.
Before we go any further, I just want to mention this article is only in relation to directors of a company (those registered with Companies House) not self-employed businesses. For example, sole-traders running their own ‘trading as’ business don’t actually ‘liquidate’ because you’re not in control of a separate entity, in that instance you would simply inform HRMC that you want to stop being self-employed and any debt is personally liable to you. So if you’re a self-employed person reading this, then you just need to follow the steps here – https://www.gov.uk/stop-being-self-employed – if you’re a company director looking to liquidate, then read on!
What is Liquidation?
First and foremost, let’s just go over the key aspects of liquidation to ensure you’re doing the right thing by liquidating your company.
Before we begin, let’s get a little specific on the term ‘liquidation’ as I’m aware some people are unsure what it means. For the sake of this article, let’s say ‘Liquidating’ and ‘Dissolving’ your company are not the same things. ‘Liquidation’ is a formal process which involves hiring a licensed insolvency practitioner (liquidator) who takes full control of the company and all its assets in order to liquidate the company and pay off any debts owed. Whereas ‘dissolving’ a company simply means you apply to have the company struck off the register at Companies House.
Therefore ‘liquidating’ a company only really applies if your company has debts owed to creditors, whether or not you can afford to pay them is beside the point at this time, the main thing to note is if you have debt to pay off, you will need to liquidate your company.
If, on the other hand, your company has no debt, then you can simply ‘dissolve’ the company by completing a DS01 form and submitting it to Companies House. So if ‘dissolving’ a company applies to you then please do not read any further into this article! You my friend, simply need to visit here – https://www.gov.uk/government/publications/strike-off-a-company-from-the-register-ds01 – complete and submit your DS01 form, and voila! Your company will be no more.
However if this doesn’t apply to you, then please keep reading as the following information lists exactly what you’ll need to do in order to liquidate your company.
How Liquidation Works
I’ll now list the key aspects that will occur once your company is liquidated.
Your company will stop being able to do business and employ people. The company will not exist once it’s been removed (‘struck off’) from the companies register at Companies House. Its assets are then used to pay off its debts and any leftover money goes to company shareholders.
If, for any reason you need to access the company bank account during/after the liquidation, you’ll need a ‘validation order’ – for more info on how to apply for one, click here https://www.gov.uk/liquidate-your-company/access-to-your-bank-account.
Any money that has not been shared between the shareholders by the time the company is removed from the register, will automatically go to the state.
Different Types of Liquidation
If you’re certain you want to liquidate your company, then there are 3 ways you can do this, (technically 4, but only 3 are actually instigated by you!). Again, just in-case you’ve jumped to this section and missed some of the introduction, for the sake of this article I’m differentiating ‘liquidating’ and ‘dissolving’ a company. The following methods all apply to liquidating your company, which all apply if you have outstanding debt owed. If your company doesn’t owe any debt then you can simply ‘dissolve’ the company which I’ve listed first:
Dissolve a Company that has No Debt
If your company has no debt owed to creditors, then the method is very simple and technically not ‘liquidating’ but instead merely ‘dissolving’ the company.
To do this just complete and submit a DS01 form and your company will be struck from the register at Companies House, thus ending its life as a Company. It’s as easy as that, at this time costs just £10 to do and you can find the form here – https://www.gov.uk/government/publications/strike-off-a-company-from-the-register-ds01
1. Members’ Voluntary Liquidation
This is the simplest option to liquidate your company, but it only applies to you if your company has enough money to pay its debts (is ‘solvent’).
2. Creditors’ Voluntary Liquidation
This option is only suitable if your company cannot pay its debts AND 75% (by value of shares) of shareholders agree that the company should be liquidated. This option allows you to arrange your own liquidator, and not ask the court to do this.
3. Compulsory Liquidation
This option is similar to the ‘Creditors’ Voluntary Liquidation’ except it means involving the court to liquidate your company, instead of you doing it yourself.
It still only applies if your company cannot pay its debts (of exactly £750 or more) AND 75% (by value of shares) of shareholders agree the company should be liquidated and also have to agree that THE COURT can wind up the company. A director of the company will then ask a court to order the company to stop trading and be liquidated (‘wound up’).
4. Forced into Liquidation
Then the fourth option (I use the term ‘option’ loosely as it is out of your control, but I digress…) is when your company is forced into liquidation by the people or organisations (your ‘creditors’) that your company cannot afford to pay. This option is out of your control and your creditors apply to the court or make an official ‘statutory demand’ to get their debts paid.
In this instance the only thing you can do as a company director is seek legal advice immediately from a solicitor or insolvency practitioner. You can find all your local insolvency practitioners listed here – https://www.gov.uk/find-an-insolvency-practitioner
Members’ Voluntary Liquidation
This type of liquidation only applies if your company is ‘solvent’ (simply meaning it can afford to pay its debts) and one of the following is true to you as a company director:
- You simply do not want to run the company any more
- You want to retire
- You want to step down from the family business and nobody else wants to run it
How to liquidate via members’ voluntary liquidation
1) Make a ‘Declaration of Solvency’ or complete ‘Form 4.25’
Whether you make a ‘Declaration of Solvency’ or complete ‘Form 4.25’ simply depends on where your company is registered. If your company is based in England or Wales, you must make a Declaration of Solvency, if your company is based in Scotland then you simply complete Form 4.25 provided by the ‘Accountant in Bankruptcy’ here – http://www.aib.gov.uk/services/liquidation
How to Make a Declaration of Solvency
This declaration sounds much more complicated than it actually is, it’s quite simply a statement that agrees all the company directors have assessed the company and honestly believe it can afford to pay off its debts, including interest. This declaration also needs to include:
- Name and address of the company
- Name(s) and address(es) of the company’s director(s)
- State how long it will take the company to pay its debts (please note this must be no longer than 12 months from when the company is liquidated)
- A statement of the company’s assets and liabilities as proof of its solvency
2) Sign the Declaration or Form 4.25
This is the simple bit, once you’ve made your Declaration of Solvency or completed From 4.25 they must then be signed by the majority of directors in front of a solicitor or ‘notary public’ (just a fancy way of saying anyone who is authorised to perform certain legal formalities, so even your accountant can do this.)
3) Call a Meeting of Shareholders
You then need to ensure all shareholders of the company are called together in a meeting and agree to liquidate the company by passing a ‘resolution of voluntary winding up’ (a simple legal document stating the majority of shareholders agree to liquidate the company). Please note this can be no more than 5 weeks later than signing the declaration or form 4.25.
At this meeting you’ll also need to appoint an authorised insolvency practitioner as the official liquidator who will be in charge of winding-up the company. All licensed insolvency practitioners can be found here – https://www.gov.uk/find-an-insolvency-practitioner
4) Advertise in the Gazette
Once you have passed your ‘resolution of voluntary winding up’ in the meeting, you’ll then have 14 days to advertise this resolution in The Gazette here – https://www.thegazette.co.uk/ – this gives public notice of your liquidation.
5) Send your Declaration or Form 4.25
You then have 15 days from passing the resolution to post either your signed ‘Declaration of Solvency’ to Companies house (for companies registered in England and Wales) or signed Form 4.25 to the Accountant in Bankruptcy (for companies registered in Scotland).
And that’s it! Once all those steps have been completed, your appointed liquidator then takes control of the company during the liquidation process.
Creditors’ Voluntary Liquidation
This type of liquidation applies if you, as a company director, choose to liquidate the company because it cannot afford to pay its debts to creditors (known as ‘insolvent’) and 75% of shareholders agree to this.
How to Liquidate via Creditors’ Voluntary Liquidation
1) Call a Meeting of Shareholders
Firstly, you must call a meeting in which all shareholders will vote for/against liquidating the company. As long as 75% (or more) agree, then you compile a ‘resolution of winding-up’ which is simply a legal document stating that 75% or more of the shareholders agree to liquidate the company.
2) Appoint an Authorised Insolvency Practitioner
You now need to appoint a licensed liquidator who will take control of liquidating the company. You can find a list of all the licensed insolvency practitioners in your are here – https://www.gov.uk/find-an-insolvency-practitioner
3) Send Resolution of Winding-Up to Companies House
Once you have compiled your resolution, you have exactly 15 days to post this Companies House.
4) Advertise in The Gazette
The final step is to then advertise your resolution in The Gazette within 14 days of signing the resolution. This simply gives public notice of the company being liquidated.
And that’s everything. Once these steps have been followed, your appointed liquidator will then take control of the company and liquidation process.
This type of liquidation is when a company cannot afford to pay its debts and so the director asks a court to order the company to stop trading and become liquidated. There are three stipulations to this type of liquidation and you must be able to prove to the court that all of the following are true:
- Your company cannot afford to pay its debts valued at £750 or more
- 75% of shareholders agree that they want the court to wind up the company
- The company must carry out most of its business in England, Scotland and Wales
Due to the involvement of the courts, this process is of course a little more complicated than any of the other options.
How to liquidate via compulsory liquidation
1) Complete the Following Documents:
- ‘Winding-Up Petition’ Form 1 – https://www.gov.uk/government/publications/apply-to-wind-up-a-company-that-owes-you-money-form-comp-1
- ‘Winding-Up Petition’ Form 2 – https://www.gov.uk/government/publications/confirm-details-of-a-winding-up-petition-form-comp-2
- A ‘Winding-Up Resolution’ from the shareholders (A document proving 75% of shareholders want to place the company in liquidation)
2) Send the Documents to Court
Once these documents are complete, you’ll then need to send them to court. The court you need to send these documents to will depend on how much ‘paid-up share capital’ the company has, there are 2 categories here:
If your paid-up share capital is £120,000 or more
You simply submit the documents online here – https://efile.cefile-app.com/ – and this will automatically go to the High Court.
If your paid-up share capital is under £120,000
You simply submit your documents to your nearest court that deals with bankruptcy, which you can find here – https://www.gov.uk/find-court-tribunal
Costs involved with compulsory liquidation
Unfortunately the cost to liquidate a company via this method is quite expensive, without exception. There are 2 fees you’ll need to pay:
- £1,600 to submit your petition (documents)
- £280 for the court hearing
3) To-Do Before the Hearing
Once you’ve submitted your petition you’ll then be given a date for the hearing, as long as the court accepts your petition of course. Once you know the date, there are 2 things you must do before the hearing:
- Give a copy of the petition to your company. Once you’ve done this you then need to complete a ‘certificate of service’ here – https://www.gov.uk/government/publications/form-n215-certificate-of-service – which then needs to be delivered to the court where your hearing is taking place.
- Put an advert in The Gazette here – https://www.thegazette.co.uk/place-notice – please note this cannot be delayed and MUST be done at least 7 days before the hearing. Again, once this has been done you need to send a copy of this advert to the court where your hearing is taking place.
4) The Court Hearing
Either you or your solicitor must be present at the court hearing, but don’t worry, it’s nothing like a criminal trial in the movies! You don’t need to give evidence etc.
As long as the court gives the order to liquidate your company (‘winding-up order’), the court will then put an official receiver in charge of the liquidation. They (the official receiver) will then start to liquidate your company. A copy of the winding-up order will be sent to your company’s registered office.
And that’s it, having followed those steps (and as long as everything goes smoothly) your company will now become liquidated.
What Happens During Liquidation?
Those are all the methods of liquidating your company. One last thing to note, when using your appointed liquidator, you as a company director will have certain legal obligations to them:
- You as a director will no longer have control of the company or anything it owns and you cannot act for or on behalf of the company, your liquidator is now in charge of everything.
- You must provide the liquidator with any information about the company they ask for, and if they require you to, you must be interviewed for further questioning.
- You must hand over all of the company’s assets, records and paperwork to the liquidator.
- It’s also worth nothing that you can be banned from being a director for 2 to 15 years (or at worst prosecuted) if the liquidator decides your conduct as company was unfit. This is of course a very doom-and-gloom scenario, but thought I’d better mention it…disclaimers and all that! But it’s all to show the power of your appointed liquidator once your liquidation is actioned.
I hope this article has been of use, if you need any help liquidating your company then please get in touch as liquidation is a service I offer, so I’d be glad to help.