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What is the process of liquidation in the United Kingdom

Liquidation in the United Kingdom refers to the process of winding up a company's affairs and ceasing its business operations. It is typically used when a company is unable to pay its debts and is insolvent. There are two main types of liquidation in the UK: compulsory liquidation and voluntary liquidation. Let's explore each process:

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What is the process of liquidation in the United Kingdom

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  1. What is the process of liquidation in the United Kingdom? Liquidation in the United Kingdom refers to the process of winding up a company's affairs and ceasing its business operations. It is typically used when a company is unable to pay its debts and is insolvent. There are two main types of liquidation in the UK: compulsory liquidation and voluntary liquidation. Let's explore each process: Compulsory Liquidation: Compulsory liquidation is a form of liquidation initiated by creditors or other interested parties through a court order. The process usually begins when a creditor (such as a supplier, lender, or HM Revenue & Customs) presents a winding-up petition to the court, claiming that the company cannot pay its debts. If the court finds the petition to be valid, it will make an order for compulsory liquidation. Here's a basic outline of the steps involved in compulsory liquidation: Winding-up Petition: A creditor or other interested party presents a winding-up petition to the court, stating that the company is unable to pay its debts. Court Hearing: The court reviews the petition, and if it determines that the company is indeed insolvent, it will issue a winding-up order. Official Receiver: Upon the issuance of the winding-up order, an Official Receiver (OR) is appointed to take control of the company's assets and affairs.

  2. Liquidation Committee: In some cases, a committee of creditors may be formed to oversee the liquidation process. Asset Realisation: The OR assesses and sells the company's assets to repay the creditors as much as possible. Debt Prioritisation: Creditors are paid in a specific order of priority, with secured creditors having priority over unsecured creditors. Company Dissolution: After the assets are liquidated, and all possible repayments are made to creditors, the company is dissolved and removed from the Companies Register. Voluntary Liquidation: Voluntary liquidation occurs when the company's directors and shareholders decide to wind up the company voluntarily. There are two types of voluntary liquidation: Members' Voluntary Liquidation (MVL) and Creditors' Voluntary Liquidation (CVL). a. Members' Voluntary Liquidation (MVL): MVL is used when the company is solvent, and the directors believe that it can pay off its debts in full within 12 months of starting the liquidation process. The process involves the following steps: Declaration of Solvency: The directors make a formal declaration of solvency stating that the company can meet its debts in full. Appointment of Liquidator: Shareholders pass a resolution to wind up the company and appoint a liquidator to oversee the process. Asset Realisation: The liquidator sells the company's assets and distributes the proceeds among shareholders after paying off all debts. Company Dissolution: Once all affairs are settled, the company is dissolved, and its name is removed from the Companies Register. b. Creditors' Voluntary Liquidation (CVL): CVL is used when the company is insolvent and cannot pay its debts in full. The process involves the following steps: Directors' Meeting: The directors convene a meeting with shareholders to propose the liquidation. Creditors' Meeting: After the shareholders pass a winding-up resolution, a creditors' meeting is held. The creditors appoint a liquidator, or they can decide to replace the proposed liquidator. Asset Realisation: The liquidator sells the company's assets, and the proceeds are distributed among the creditors following the prescribed order of priority.

  3. Company Dissolution: After the liquidation process is completed, the company is dissolved, and its name is removed from the Companies Register. It's essential to seek professional advice from insolvency practitioners or lawyers to navigate the liquidation process correctly, as it can be complex and legally demanding. This overview provides a general understanding of the liquidation process in the UK, but specific details and legal requirements may vary depending on the circumstances and the type of liquidation chosen.

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