A voluntary liquidation of a company is when a company’s directors and shareholders feel that the business no longer requires to operate and therefore they decide to close it. This is not a court order and is not the result of insolvency due to an inability to pay debts.
A company voluntary liquidation process involves the identification of assets and liaising with creditors. The process will take time, typically a year from start to finish.
Creditors’ Voluntary Liquidation
Creditors’ Voluntary Liquidation (CVL) is a formal insolvency process that allows insolvent companies to shut down and wind up. Unlike compulsory liquidations which are initiated by creditors and often result in a winding up petition, CVL is initiated by company directors who have determined that the company can no longer satisfy its debts.
When a company enters into CVL, the directors must appoint an authorised insolvency practitioner to act as liquidator. This appointment is generally approved by shareholders at a meeting of creditors, who will then receive details of the company’s financial affairs and agree a distribution of its assets to its creditors.
Members’ Voluntary Liquidation
If you are a director of a company and you wish to close it down, there are a number of ways to do so. One way is a company voluntary liquidation (CVL).
In this process, the directors decide to wind up the company voluntarily. This is usually a quicker and less tax-inefficient way of closing a company than other options.
Once the decision is taken to wind up a company, the first step is for the directors to sign a declaration of solvency. This confirms that the company is solvent and can pay its debts within 12 months.
Creditors’ Compulsory Liquidation
Compulsory liquidation is a formal way of closing down a company that can no longer pay its debts. It’s a procedure that can be initiated by creditors through the court, or by HMRC when the company’s assets are low and its liabilities are high.
It’s a process that can be difficult for directors as they have to put their creditors first, and there are professional fees involved which may be a barrier to some.
Thankfully there is another option, Creditors’ Voluntary Liquidation (CVL) which allows directors to take control of the closure of their business and ensure their creditors are paid.
Members’ Compulsory Liquidation
A company can enter a formal process called Members’ Voluntary Liquidation (MVL) when it is solvent and can pay its debts within a 12 month period. This is the quickest and most tax-efficient way of winding up a business and it is often preferred by directors who want to close down in a tax-efficient manner.
The first step in the process is for the company’s directors to complete a Declaration of Solvency, which states that the company is solvent and can pay its debts within twelve months. This must be lodged with ASIC before the formal notice of the meeting of members is issued.