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What is Company Liquidation?

Company liquidation involves the process of a business closing down and selling off assets in order to settle debts and liabilities. Once the assets have been sold, any remaining funds are distributed amongst creditors and shareholders. Liquidation can be used as a way to wind up the affairs of a failing company, or it could simply be a strategic decision made by directors wanting to move on. It is also possible for a new business to purchase the liquidated company’s name and continue trading under that name, as long as all stakeholders are informed and the courts have agreed to it.

There are two ways a company can go into liquidation: a members’ voluntary liquidation (MVL) or a compulsory liquidation. An MVL is where a majority of shareholders vote to dissolve the company and appoint a licensed insolvency practitioner as the liquidator. A CVL is when a court orders the closure of a company following a petition by a creditor or other interested party.

Once appointed, the liquidator’s first task is to identify and sell any corporate assets such as equipment and premises. They will then use the proceeds from the sale of assets to pay off creditors, in line with the UK’s Insolvency Act 1986.

Directors have a legal duty to cooperate with the liquidator and provide them with any information or documentation they need to carry out their duties, including the company’s books. They must also adhere to certain timeframes, as set out by the Insolvency Act. It is possible for a director to be sued by the liquidator for not co-operating or for conducting wrongful trading, which is considered an offence under insolvency law.

The liquidator will investigate the causes of the company’s failure, and if they believe a director has committed wrongful trading, this may result in them being banned from acting as a director for a period of time. In addition, employees will be compensated for any loss or damage suffered as a result of the company’s liquidation.

Once all outstanding debts have been settled and the remaining assets distributed, the company will be dissolved and struck off the Companies House register. The liquidator will then publish final reports on the activities and outcomes of the company liquidation uk for creditors and shareholders, and file these with us. Once the company has been dissolved, it will no longer exist as a legal entity and its name cannot be reused.

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