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What are the effects of Voluntary Liquidation?
Implications for the company
Once the liquidation process begins, the company stops trading and is effectively closed. In general it cannot continue to do any further business.
A liquidator is appointed who sells any assets the company owns such as property, machinery, finished stock or work in progress.
Any legal actions being taken against the company for the collection of debt are stopped and dealt with by the liquidator.
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Implications for Directors
Once a company is liquidated the directors will be dismissed.
In the case of a creditors voluntary liquidation, the liquidator will be obliged to carry out an investigation of the conduct of each director (or any person who has acted as a director).
If the liquidator believes that any director has knowingly allowed the company to trade while insolvent, they could be accused of wrongful trading. This could lead to being disqualified from other directorships and even being held responsible for the company’s debt.
It is less likely to be accused of wrongful trading when the directors have initiated the closure of the company themselves.
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Implications for Employees
Once a company is liquidated, all employees will be made redundant. Whether or not employees receive redundancy pay will depend on whether the company can afford to pay this.
If the company is solvent as in the case of a members voluntary liquidation, then employees should receive any redundancy payments that they are entitled to under the terms of their employment contracts.
If the company is insolvent as in the case of a creditors voluntary liquidation, then if it can afford to do so, the company will pay each employee up to £800 redundancy.
If employees are owed more than this, the outstanding balances will be treated as any other unsecured creditor. As such, it would be unlikely that employees would receive much more from the company.
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Implications for Creditors
If the company is solvent, then all creditors will be paid what they are owed in full.
If the company is insolvent, then the liquidator will sell any assets that the business has to try and get the best return possible for the creditors. However, it is unlikely that creditors will be returned more than a small percentage of what they are owed.
In the case of a creditors voluntary liquidation, the creditors have the opportunity to agree to the liquidator who has been suggested by the company directors or they can appoint someone different at the creditors meeting.
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