How long does liquidation take?
So, you’ve decided to liquidate your business, you’re probably trying to figure out how everything works, when things will start to happen and how is best to deal with the liquidation process. If you’re wondering – how long does liquidation take? We’re here to give you all of the important information you need.
There are a few reasons why you might have decided to liquidate your company. Maybe you’re retiring, or starting a new venture or maybe your business has reached the end of its life and insolvency is the next step.
Insolvency is usually identified when a business is unable to pay its debts. These debts can be due to HMRC, suppliers or banks – they are known as your company’s creditors.
Liquidate a company
There are a few types of liquidation that can be used to close a limited company down based on personal circumstances.
Members voluntary liquidation (MVL)
A members voluntary liquidation is used by companies who are solvent and can afford to pay off their outstanding debts within a certain time frame. This is called a statutory declaration. The MVL process of liquidation is cheaper than others due to the insolvency practitioner having less to sort out.
Creditors voluntary liquidation (CVL)
As the name suggests, a creditors voluntary liquidation is entered into voluntarily, usually after experiencing financial difficulty. This is often used by insolvent companies. The aim of a CVL is to close down the company in a structured manner, which will be handled by the licensed insolvency practitioner.
Compulsory liquidation
A compulsory liquidation is the worst to be involved with. This means your creditors have chased you for a long time and you have now been issued with a winding up order and court date. This liquidation is forced upon you which doesn’t look great as a director as you have not complied with director responsibilities.
You will also lose control of the liquidation, be unable to choose a liquidator and have no input in how long the process takes.
Pre pack liquidation
A pre pack liquidation is used by an insolvent company that still has a chance to survive through a new company, a ‘phoenix company’. Generally, the company assets from the original business will be bought by the new company at market value.
How long does it take to liquidate a company?
Unfortunately, there is no definitive answer for how long your liquidation will take. It is dependent on a range of factors such as the method of liquidation that is used, the number of creditors that you have and the way that you have acted as a director.
You can get your company placed into liquidation in just a few weeks, once in liquidation you cease to act as a director for the company.
On average, it takes between 6 and 24 months to completely close a company. This includes everything from approval through to the business being struck off the Companies House register.
Liquidation process
All liquidation processes vary, here is an average time frame that you may choose to use as a guide for a compulsory or voluntary liquidation. Liquidation processes are very different and a compulsory liquidation time frame will need to accommodate court proceedings.
Making the decision to put your company into liquidation is never an easy one, regardless of the reasons why. For some, it can take months of deliberation before you decide that you actually want to liquidate a company.
As we said, it’s always best to make an informed decision as quickly as you can to avoid being forced into a compulsory liquidation.
In compulsory liquidations, it is difficult to suggest how long it takes between the initial threat of creditors, receiving a winding up petition and entering court proceedings. In the court hearing, an official receiver will be appointed to the case and you will lose director responsibilities.
Appointing an insolvency practitioner
After you have decided to close your limited company, you will need to appoint an insolvency practitioner. Before you decide who to go with, you’ll need to conduct research.
Make sure you are only considering licensed insolvency practitioners and that you get everything in writing before appointment. This can help to avoid further payments down the line. These can include money owed to the company by directors through an overdrawn director’s loan account.
The process of appointing a liquidator should take no longer than 2 weeks and, if the business hasn’t already, you should stop trading now.
Upon appointment, it is the practitioner’s job to let your creditors know that you are attempting to liquidate the company. You will be required to give a minimum of seven days’ notice to your creditors.
Director responsibilities
A creditors meeting is held to notify creditors of the liquidation. This is unlikely to be a physical meeting and usually takes place through a virtual meeting for ease. Once a creditors meeting has been held, all the paperwork begins.
As a company director, you have a duty to co-operate and provide all necessary information regarding your business when it is requested. Before entering the liquidation, you should have asked for an up-to-date set of accounts. This will have allowed you to assess your financial situation.
Directors loan accounts
You should also have made yourself aware of any company director’s loans you have taken. Do not think that these will be forgotten about.
The role of an insolvency practitioner is to scrutinise your actions and if you have acted improperly or ignored a director’s loan, you may be held personally liable for company debt.
Your liquidator will be looking closely at your business information and particularly looking for anything that could have led to the failure of your business. Typically, they will look at your actions from up to 3 years before you filed for the liquidation.
Can’t repay creditors?
Most companies file for liquidation when they have no money left in the bank, therefore it’s unlikely that you’d be able to pay back your creditors. You might even be thinking ‘I can’t afford to liquidate and pay an insolvency practitioner’ but you do have options available.
There are a couple of ways that insolvency practitioners can attempt to pay back your creditors:
● Selling your company’s assets – these can include stock, machinery, or any business property.
● Collect money owed to your company – usually from customers or clients
● Check whether you are entitled to director redundancy, the average claim is £9,000 so more than enough to cover your liquidation costs.
It is worth making yourself aware of who gets paid first in a liquidation, shareholders are unlikely to receive anything from the liquidation. Usually, a company will have a mix of both secured creditors and unsecured creditors.
I’m being made personally liable for business debts
After the realisation of business assets has been completed, the liquidator will send a final report to the creditors which will outline the director’s conduct.
In certain circumstances, you will could be made personally liable for business debts. This may be identified during a company director’s investigation.
Be aware that if you left your business to enter a compulsory liquidation by burying your head in the sand, you may be scrutinised more heavily.
Director’s investigation
In a director’s investigation, the insolvency practitioner will be looking for elements of wrongdoing. These can include:
● Making preference payments – paying some creditors over others
● Wrongful trading – continuing to trade despite there being clear signs of insolvency
● Failure to keep business records up to date – company accounts and taxes
In some cases, committing these acts of wrongdoing could lead to fines or worse, director disqualification. A disqualification typically lasts between 2 and 15 years and will remain on your record should you become a director again after this time.
If you have committed any wrongdoing as a director, this will prolong the liquidation even further.
As we mentioned earlier, there is no set time frame for a company liquidation in the UK. Usually, small company liquidations take less time to complete, though this is not always the case.
For the best outcome in liquidation and company closure, we would recommend making informed decisions as quickly as you can.
Do not bury your head in the sand and be honest about any debts you owe. This way the insolvency practitioner will be able to provide you with an accurate figure and expected outcomes from the liquidation.
If you need any further information on how liquidation works, we can provide a confidential, free consultation to discuss your company’s situation.
I'm Chris Worden, Managing Director at 1st Business Rescue. With over 7 years of experience, I help UK directors navigate the complex world of UK corporate insolvency. We offer free and independent advice to UK directors and advise them about what options may be available to them if their limited company starts to struggle.
I am passionate about helping other directors overcome their business challenges and get back on their feet, as I was once in the same position as them. I had a business that became insolvent, and the advice out there was confusing and overwhelming. I am here to provide honest and valuable advice to UK directors.
I am proud to say that we are one of the only 5-star corporate insolvency companies on Trustpilot with hundreds of 5-star reviews, and we publish videos weekly on our YouTube channel. Our channel is designed to educate UK directors about insolvency and debt advice. Check it out here:
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