Voluntary Liquidation refers to the director-led processes of entering your company into liquidation. There is a voluntary liquidation option for whether your company is solvent or insolvent.
The two voluntary liquidation procedures are:
- Creditors’ Voluntary Liquidation
- Members’ Voluntary Liquidation
For formal liquidation procedures only a Licensed Insolvency Practitioner can be appointed to perform them.
Creditors’ Voluntary Liquidation
A Creditors’ Voluntary Liquidation is the director-led process for insolvent companies. This liquidation is the most common form of company liquidation within the UK.
A key point to note within this voluntary liquidation process is the director investigations. The Insolvency Practitioner will distribute the questionnaire to the directors for them to fill out and return. The investigation will look into the trading history of the directors to see if any misconduct occurred.
This investigation is a mandatory aspect of a liquidation for insolvent companies.
The alternative option to this liquidation would be Compulsory Liquidation.
Members’ Voluntary Liquidation
A Members’ Voluntary Liquidation is the director-led process for insolvent companies. A director will choose to liquidate their solvent company as they feel it no longer has a purpose to continue trading.
The directors will need to sign a Declaration of Solvency and swear to its contents in front of a solicitor. This legal document is to show that the company is in fact solvent and can therefore pay off all creditor debts in full.
This voluntary liquidation will be beneficial to companies who have shareholder funds that exceed £25,000. This is because this procedure will assign healthy tax benefits to the funds by treating them as capital receipts rather than income.
If shareholder funds are below £25,000 then they should automatically be classed as capital receipts and so the director may look to a Strike Off route instead.
We have been supporting businesses facing liquidation for 35 years. Contact us today for a free initial consultation to discuss your situation.