The advantages of Limited Company Liquidation

Understanding limited company liquidation?

There are various advantages to limited company liquidation regardless of your company’s financial situation such as reducing creditor pressure if your company is insolvent and significant tax benefits if your company is financially healthy.

Limited company liquidation is a formal process of closing down a limited company and distributing the liquidated assets to creditors and shareholders (depending on the type of liquidation needed). The main focus is to settle all company debts and formally dissolve the company in a structured way in line with legal regulations.

What are the advantages of liquidating a limited company?

Debt relief

One of the most significant benefits of liquidating a limited company is the relief from the anxiety of dealing with creditors demanding payment. If your company is struggling with large amounts of debt, liquidation can bring an end to the misery. The liquidator takes over communication with the creditors, controls the process of selling company assets and using the proceeds to pay off creditors where possible

Guidance for directors

Once you instruct an Insolvency Practitioner, they can give guidance to you to help ensure you act in line with your legal responsibilities leading up to the liquidation. This can help protect you from legal action or personal liability relating to your company’s debts.

Employee support

During a limited company liquidation, employees may be entitled to claim redundancy pay and other entitlements. This can provide financial support for your employees when your company is liquidated.

Tax benefits

With a solvent limited company liquidation (MVL) there can be tax advantages. You may be able to benefit from Business Asset Disposal Relief which can reduce the amount of Capital Gains Tax you pay on your dividends as a shareholder from the company assets.

What are the disadvantages of liquidating a limited company?

Loss of control

During the liquidation process, the appointed Insolvency Practitioner will take over the decision-making process involving asset sale and debt repayments. You may find this loss of control difficult if you are used to managing all your own affairs.

Cost

The cost of entering into a voluntary liquidation falls upon you and any other company directors. Pre-appointment fees will need to be paid before the liquidation process can begin.

At the liquidation Centre we offer payment plans for pre-appointment fees to help you get your liquidation started and help to relieve creditor pressure as soon as possible.

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Impact on reputation

Being forced into compulsory liquidation can have a negative impact on yours and your company’s reputation. Suppliers, customers and future business partners may view this type of liquidation unfavourably, effecting your future business prospects.

Entering into a voluntary insolvent liquidation process displays a level of responsibility over the situation and a desire for your creditors to be repaid where possible.

Investigation

Liquidating a limited company will involve an investigation into your company’s financial affairs by the appointed Insolvency practitioner. If evidence of wrongful or fraudulent trading is found, you could face legal action, personal liability and a disqualification from holding a future directorial position.

What are my other options?

Limited company liquidation is not the only option to wind-up your company. For companies such as those with low to no assets that have reached the end of their life a dissolution otherwise known as a strike-off can be appropriate.

Dissolutions can be a quick and cheap way to close down your limited company. This option is only appropriate to solvent companies with no debts or liabilities. Trying to close down your insolvent company through a dissolution will almost certainly be blocked by a creditor who is owed money from your company. This can result in legal action and even personal liability for the debt at further cost to you and your company.