Voluntary liquidation

Voluntary Liquidation

Voluntary Liquidation is when the Directors and Shareholders of the company voluntarily decide to wind up the company because it is unable to pay its debts and it doesn’t have sufficient assets to cover their debts.
Voluntary liquidation is a quick way for a Business which feels it can no longer continue trading to settle its debts.

The process of Voluntary Liquidation

Most companies choose this option because they are insolvent and feel that recovery is not an option. In order to begin Voluntary Liquidation the Directors of the business must call a meeting with the shareholders. At the meeting they decide to cease trading and fold the company because the company is unable to pay its debts and therefore it would be unethical to continue taking credit from their creditors.

Once a company has decided to enter Voluntary Liquidation a Liquidator will be appointed, they will then manage the process. Their first task will be to contact the Creditors and explain the situation, the Creditors have to formally appoint the liquidator and they may also choose to form a committee to oversee the process. Whilst the company has voluntarily chosen to enter the process and they have appointed a liquidator, once appointed officially by the Creditors the liquidators main priority is to convert the businesses assets into cash and pay the creditors.

The Advantages

• Your debt is written off
• You can start another business
• Legal action is stopped
• The Directors are usually able to move on

The Disadvantages

• The company has to close down so if you want to go back into business you will need to form a new company
• If you want to keep some of the company’s assets you will need to buy them
• If you keep running business that continue to go into liquidation you may find that people no longer have faith in your businesses

Risks of not entering Voluntary Liquidation

As a Company director you have a responsibility to your creditors, so if your business is insolvent and you close down your business without resolving your debts you may be prosecuted under ‘Wrongful Trading’.