Did you know that over 650,000 businesses in the UK are dealing with significant financial concerns?
When a business is dealing with major financial distress and doesn’t have any way to pay back creditors, it will likely result in liquidation. This means the business will be closed, creditors might be repaid with business assets, and employees will be fired.
It’s a difficult transition for any company to make. But, there are three different types of business liquidation that have benefits for directors and creditors alike.
Are you trying to figure out how to liquidate a company in the UK? Keep reading as we discuss the three main types of business liquidation.
Solvent Liquidation
The solvent form of liquidation is called Members’ Voluntary Liquidation (MVL). This is generally used when a business doesn’t have any further use or the director wants to retire.
A licensed insolvency practitioner will make sure that all of the legal requirements are met on behalf of the business. They will look at the assets the company has, repay the creditors as needed, and then distribute profits among the remaining shareholders.
You can check out this resource to learn more about MVL. This is usually the most tax-efficient way to end a business, as distributions are taxed as capital instead of income.
Compulsory Liquidation
This is one of the insolvent liquidation processes and is generally initiated by a creditor that is owed over 750 euros. Once a winding-up order is granted by the court, creditors are benefitted with sold business assets. The company will be forced to close down under this type of liquidation.
Compulsory liquidation is arguably the most serious type of liquidation in the UK. And, it will result in all employees being let go from their positions.
Directors of these companies will face an investigation to see if their personal actions caused the company to be in a poor financial state.
Creditors’ Voluntary Liquidation (CVL)
A CVL will ultimately result in the company’s closure and creditors being repaid with sold-off business assets. However, it is more financially prudent to get a CVL over a compulsory liquidation. This is especially true if directors believe that a winding-up petition will come into play.
Directors can get insolvency practitioner advice for this liquidation process. Since they entered the liquidation voluntarily, the directors will be seen as putting their company’s creditors first.
This is a major benefit, as the creditors will need to vote on the CVL to make it legally binding (as a form of repayment).
Explore the Different Types of Business Liquidation
Each of the business liquidation types has its own benefits, but the best option is to enter liquidation voluntarily. If you think you may be facing liquidation in the future due to financial distress, it is best to look into a Members’ Voluntary Liquidation or a Creditors’ Voluntary Liquidation.
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