A Guide to Company Liquidation

What is a Liquidation?

Liquidation is a formal process for an insolvent company. The company's assets are turned into cash and then distributed to its creditors. After the assets are sold and the proceeds distributed, the company is dissolved and ceases to exist. If a company has no assets, it is simply wound down in the same process. Liquidation is essentially the end of the road for a company.

Who can put a company into Liquidation?

In a Creditors' Voluntary Liquidation, the company's shareholders (also referred to as members) pass a special resolution (75% majority required) to wind up the company and an ordinary resolution (simply majority) to appoint a Liquidator who must be a licensed insolvency practitioner. A decision procedure, usually a virtual meeting, is subsequently held for creditors to confirm the Liquidator's appointment or appoint another Liquidator of their choosing. Voting is by a majority in value of the creditors i.e. the largest creditors of the company will have the ultimate vote to appoint their own Liquidator. However, it fairly uncommon for creditors to nominate an alternative Liquidator from the one chosen by the shareholders.

In a Members' Voluntary Liquidation, the company's shareholders (also referred to as members) pass a special resolution (75% majority required) to wind up the company and an ordinary resolution (simply majority) to appoint a Liquidator who must be a licensed insolvency practitioner.

What is insolvency?

Insolvency is where a company or partnership has insufficient assets to pay their debts ("balance sheet insolvency") or is unable to pay their debts when they fall due ("cash flow insolvency").

What are the obligations of a director if a company is insolvent?

Directors must take adequate steps to ensure that the company does not incur any further debts. Once a company is considered insolvent, the Directors primary duty is to protect the interests of the company's creditors. The company should cease making payments to all creditors but should continue paying ongoing insurance premiums. Directors should also take steps to secure, insure and protect the company's assets.

Can Director purchase the business and/or assets of an insolvent company?

A Liquidator is under a duty to obtain the best available price for the company's assets. He/she will usually obtain an independent valuation following their appointment. If the Directors put forward the best offer then the assets can be sold to them or to their new company.

Can I be a new company director?

If your company goes into Liquidation you can continue to be a director of a company.

My employees have outstanding wages, what will happen?

When a company enters Liquidation, the Government will make certain payments, subject to statutory limits, to the company's employees. Payments will include unpaid wages, statutory notice, redundancy pay and any accrued holiday pay.

What happens at a meeting of creditors?

A creditors' report will be prepared with our assistance, which is forwarded to the creditors. This contains details of the background to the company, the reasons for its failure and statutory and financial information. Creditors are then given an opportunity at a virtual meeting of putting questions to the Directors regarding the company's affairs.