Voluntary liquidation is a self-imposed ending and dissolving of a company, carried out with the purpose of ending a company’s operations, winding up its finances and bringing an end to its corporate structure.
It is a route taken by many company directors, however, it is a big decision and if you are considering closing your company with a voluntary liquidation there are some important factors and questions you must take into consideration.
In this guide, Clarke Bell outlines all the information you need to understand how the process works, what is involved and how you can put your company into voluntary liquidation in 2020.
What is a voluntary liquidation?
First, let’s look at exactly what a voluntary liquidation involves.
The process of a voluntary liquidation is started by a company’s directors or owners and carried out when it is approved by company shareholders.
A voluntary liquidation allows the company to liquidate its assets which in turn can be used to pay debts or free up funds.
The company is then taken off the registrar of companies, a process also known as dissolution. This is the final stage of the liquidation process.
This is the difference between dissolution vs liquidation. Whereas liquidating involves formally closing your company where there are still assets to be dealt with, dissolving is the process when the company is struck-off the registrar.
Why choose voluntary liquidation?
There are several reasons why a company would choose to go into voluntary liquidation. It might be because the company is operating at a loss or that a key member of the business is leaving or retiring and it has been decided that the whole company will therefore close.
Whatever the reason, this is a route taken by many companies each year and could be the best path forward for you. If you have decided to close your company through voluntary liquidation, the next stage is to ask yourself some important questions to determine the best route forward.
Is your company solvent or insolvent?
To close your company through voluntary liquidation, you must first establish whether your company is solvent or insolvent. This will determine your next steps.
For those companies that are solvent, meaning they can pay their bills, and have assets typically over £25,000, a Members’ Voluntary Liquidation (MVL) is usually the best route to take.
This is typically the option taken when you no longer want or need your company because you want to retire, are moving abroad or are perhaps taking up an employee role.
With a Members’ Voluntary Liquidation, the business director(s) can quickly close their company to free up funds. With this option, any funds taken out are subject to Capital Gains Tax, not income tax. What’s more, there are additional tax advantages if you qualify for Business Asset Disposal Relief (this was known as Entrepreneurs’ Relief before 6 April 2020).
With Business Asset Disposal Relief, eligible entrepreneurs who are selling all or part of their business pay just 10% in Capital Gains Tax on profits over the lifetime of their business (up to a limit of £1 million.) This 10% rate is significantly less than the 18% for basic rate income tax payers or 28% for higher rate payers that you would otherwise be charged.
However, if your company is not solvent, meaning it cannot pay its debts, you will instead need to close your company through a Creditors’ Voluntary Liquidation (CVL).
A Creditors’ Voluntary Liquidation is an option forwhen your company can no longer pay its bills and is being chased for payments. With this route, all trading ceases and any assets are sold.
This route is usually taken if you have creditors asking for money to be repaid and you wish to avoid being forced into liquidation (compulsory liquidation), you want to protect your personal finances from your business debts or your company is not showing signs of recovering.
Whether you use the MVL or the CVL process, you must appoint an Insolvency Practitioner to carry out the liquidation.
How long does voluntary liquidation take?
There is no set timeframe when it comes to the voluntary liquidation of your company. The time it takes to liquidate will depend on many variables from case to case. However, once you have engaged an Insolvency Practitioner, you can typically expect that they will begin acting straight away. This means your company can be put into liquidation within two to three weeks if the correct information is provided promptly.
How can you choose the right Insolvency Practitioner to use?
All insolvency procedures require the services of a Licensed Insolvency Practitioner.
When looking at which Insolvency Practitioner to use, you should look at whether the practitioner charges competitive prices, can offer a convenient service, has a good reputation, has been trading for a long time and can show a proven track record of experience. That’s where Clarke Bell comes in to help.
Why use Clarke Bell?
Whether you want to liquidate your company with a Members’ Voluntary Liquidation or a Creditors’ Voluntary Liquidation, Clarke Bell is here to help you.
We work with you closely to discuss your situation and work out the best option going forward.
We will not charge you for our initial consultation. Any fees subsequently charged will depend on the solution you choose and will only apply once properly authorised. Our advice is confidential.
We have been trading for more than 28 years, in which time we’ve helped thousands of company owners with the liquidation process. Whether you have a simple or complex case, our team of experts are on hand to help.
Get in touch with us today on 0161 907 4044 or email us on [email protected]