Liquidation

Liquidation

A business turnaround, or rescue, requires the execution of a set of actions with the intention of achieving a strategic goal – usually the continuation of profitable commercial activity.

Company Liquidation is one of those actions which may be considered appropriate for business recovery. The specific actions undertaken will depend on the particular circumstances, and the knowledge and experience of those brought in to advise, often insolvency practitioners. Liquidation is usually selected because it brings closure and can be achieved relatively swiftly.

Liquidation, or winding-up, marks the end of the line for a limited company. The formal process of converting all the assets into cash and paying off creditors, including shareholders, brings the life of the company to a close.

However, there is no need for liquidation to also mean the end of the business which the company ran. Trading can continue, often without a break, while the assets and activities of the firm are transferred to new ownership. This could be the owners of the previous company, a third party, or some combination of the two.

As the UK’s fasted growing corporate recovery specialists, the SFP Group has extensive experience of restructuring and turnaround situations. It has helped businesses secure the best possible outcomes following company insolvency

Three types of company liquidation

A company can be placed into liquidation through choice, or as a result of the actions of creditors seeking recovery of at least some of their outstanding debt.

A Members’ Voluntary Liquidation is initiated by shareholders when a solvent company is no longer required to exist.  This usually occurs when the business ceases or is transferred elsewhere, as part of a restructure or change of ownership, and there is no requirement for the company to continue. The conversion of any remaining assets provides enough cash to settle outstanding debts and pay off shareholders.

When a company becomes insolvent, the directors can choose to initiate a Creditors’ Voluntary Liquidation. This is a common form of company liquidation, as it allows the company’s affairs to be wrapped up quickly and the creditors paid off, although not in full. The business in which the company was engaged is usually transferred elsewhere, and trading can continue without a break.

The shareholders must agree to the liquidation, calling in an insolvency practitioner, who arranges a meeting of creditors. This meeting appoints a liquidator who manages the winding-up of the company.

Unlike the other two forms of company liquidation, a Compulsory Liquidation is initiated by a creditor seeking settlement of a debt of more than £750. HMRC often use this as a tool to persuade firms to pay their outstanding tax bills.

While the process of a Compulsory Liquidation may be halted, it can initiate a business turnaround process, because it usually indicates a need for fundamental restructuring. However, directors should seek to act earlier if they know that the business is in trouble, in order to protect creditors and to give themselves more time and options for business recovery.

However, liquidation can be a complex legal and financial process, requiring input from insolvency specialists. The disadvantages associated with using liquidation as part of a corporate restructuring can outweigh the benefits, meaning professional advice and support is extremely valuable at this crucial stage in the life of a business.

How the SFP Group can help

Through its own divisions, and network of partners, the SFP Group provides an extensive mix of services aimed at supporting corporate recovery. Independent business reviews, audits, forensic accounting, the recovery of assets, sales ledger collections and access to new finance are all part of the SFP Group solution.

Through our involvement, companies achieve the best possible outcomes from insolvency, liquidation and turnaround scenarios. Costs are controlled, assets protected and finance sourced to enable new beginnings.

Our expertise has been recognised by our peers, leading to us being named Best Business Recovery Specialist at the 2012 Business Moneyfacts Awards.