Compulsory or Voluntary Liquidation – which is best for me?

liquidation

Liquidation is the appropriate procedure when your company is insolvent (e.g. it cannot pay its debts) and there is no real prospect of saving a viable business.

When it comes to the winding up of an insolvent company it is important to understand the difference between compulsory and voluntary liquidation. Whilst both are governed by the same legislation, they have different implications for you as a director and for your company.

Compulsory Liquidation

Compulsory liquidation is a process usually forced upon a company by a creditor owed over £750; should you fail to settle the debt, within 21 days of being formally requested for payment, they can petition the Courts for your company to be forcibly wound up.

Once a winding up order is made by the Court the Official Receiver, who is a civil servant and officer of the Court, will take over control of your company.  Their role is to recover assets for the benefits of creditors and begin an investigation into the directors conduct and evidence of wrongdoing.  This may result in disqualification proceedings, fines etc.

Voluntary Liquidation

As the title suggests, a voluntary liquidation is where the directors decide to close their insolvent business voluntarily before they are forced to do so by a creditor.

Neither the Court or Official Receiver are involved in the voluntary liquidation process and an Insolvency Practitioner, such as a member of our firm, are appointed to deal with the company’s affairs.

Voluntary liquidation is a more proactive course of action since you are seeking professional advice in dealing with your business, that is unable to pay its debts and which will in all likelihood be rendered insolvent at some point in the future.

Which type of liquidation is best for me?

One of the main benefits of voluntary liquidation is that the process is initiated by the directors rather than forced upon them. In this way it ensures that you remain in control of the process, and the company closes down in an orderly manner.

 

Voluntary liquidation has several other benefits, as follows:

  • If the directors wish to create a new company, they can negotiate the purchase of the business and assets, prior to the company entering liquidation, allowing them to trade the newco debt free.
  • The process is quicker and does not involve the Court or the Official Receiver, which some directors find intimidating
  • There can be serious ramifications for anyone found guilty of operating a business they knew to be insolvent so acting voluntarily, in a timely manner will assist in showing the liquidator that you are a responsible director.
  • Employees can receive compensation from the redundancy payments office quicker than via a compulsory liquidation.

 

If your company is experiencing financial problems, please get in touch to discuss your current situation and the options available. Our skilled and experienced team of Insolvency Practitioners will help you find a solution.

Please call us now on 0330 159 8080 for a FREE initial consultation.

 

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