Voluntary liquidation is when the shareholders of a company decide to voluntarily wind up the business and dissolve it; this is usually in order to pay off creditors. In essence the business is solvent, because it has assets that cover its debts, but the shareholders wish to either restructure the business or cease trading.
However if the business was insolvent, that is if the business did not have assets to cover its liabilities the process would be called Creditors Voluntary Liquidation and would be a process initiated by the creditors in order for them to try and recover what is owed to them.
Members Voluntary Liquidation is often used to restructure businesses or as a way for shareholders to withdraw their investments.
The process of Members Voluntary Liquidation
When a business has decided that Members Voluntary Liquidation is the right course of action, the directors invite the shareholders to a meeting. Prior to the meeting the directors make a Declaration of Solvency stating that the business is able to repay its debts within 12 month.
Once all the shareholders have agreed to liquidate the company, they appoint a liquidator. A liquidator is an insolvency practitioner, their role is to sell of the remaining assets and use the money to pay of the outstanding creditors, and they then distribute any surplus money to the shareholders.
If the liquidator finds that the company is not solvent, and that the assets don’t cover the debts, then the Members Voluntary Liquidation process is converted to a Creditors Voluntary Liquidation process. This is very serious and can result in the directors being liable for a fine or imprisonment because they have wrongfully made the statutory declaration of solvency.
Getting the right advice
If you decide to go down the route of Voluntary Liquidation it is worth getting some advice from an insolvency specialist first to ensure that this is the right decision for you and your shareholders. The process is reasonable straightforward however the consequences for declaring yourself solvent when you are in fact insolvent are great, so you need to be absolutely sure that your business is solvent before you start this process.
If your business is solvent then it may be worth speaking to a business turnaround specialist as there may be other option instead of liquidation. A business turnaround specialist will be able to give you an objective view on your business situation and they may offer solutions that you have never considered before.
To understand the whole range of options and to get help choosing the right one for your business contact us on 0800 597 4757 or enquire online using the form opposite.
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