Company liquidation involves professionally valuing and selling a business’ assets, and distributing the proceeds according to the company’s financial status on closure – essentially, whether it’s solvent or insolvent.
Solvent liquidations are carried out under a process called Members’ Voluntary Liquidation, or MVL, and the proceeds of sale are distributed amongst members. With voluntary insolvent liquidations, it means the company can’t repay its debts, so the process differs.
Under Creditors’ Voluntary Liquidation (CVL), the liquidation funds are paid to creditors in the statutory order. Compulsory liquidation is a further form of insolvent liquidation whereby a company is forced into winding up by a creditor.
Although liquidation generally means permanent closure for the majority of businesses, there are instances where a company might have to be reinstated to the register at Companies House after it’s been closed down.
If a company is restored to the register after liquidation, a new liquidator will be appointed. This might occur if new information comes to light, for example, and director conduct needs to be investigated further after the liquidation process has completed.
It’s incumbent on limited company directors to fulfil certain statutory obligations, and when the company enters insolvency, creditors’ interests must be protected to minimise financial losses.
If creditors aren’t prioritised directors can face allegations of wrongful trading, or other forms of misconduct/misfeasance. So what types of action could lead to the reinstatement of a company in this way, and what are the potential consequences for directors?
Director misconduct could include a number of different actions, whether carried out deliberately or unwittingly. For example:
Preferential payments occur when a creditor is repaid in favour of others. In practice, this is commonly a family member or friend of a director – someone who has provided a loan to the business.
Transactions at an undervalue
These types of transactions take place when directors sell or otherwise dispose of business assets at below their true value – often to a friend or family member – with a view to depriving creditors of liquidation funds.
If it’s discovered following liquidation that directors have concealed assets, the company may be reinstated to allow the liquidator to restore the property/asset to business ownership.
Directors face a range of sanctions under these circumstances, including personal liability for company debts, disqualification for up to 15 years, and even a prison sentences in cases where serious fraud is uncovered.
Company liquidation is an official procedure carried out by licensed insolvency practitioners (IPs). A dissolved company, on the other hand, has been struck off the Register of Companies – a process either instigated voluntarily by directors or enforced by Companies House.
Voluntary dissolution is an inexpensive method to close a company but the business must be solvent. Again, it can be reinstated to the register if creditors make a claim, and directors face scrutiny by the Insolvency Service if this occurs.
In a similar way to restoration following liquidation, the dissolved company is reinstated to the register as if dissolution never took place. This allows claims to be made by creditors as they would have done if the business was still actively trading.
If you’d like more information on company reinstatement after liquidation, or any other aspect of the liquidation process, UK Liquidators will help. We’re independent specialists and can ensure that you follow the correct procedure according to your business’ circumstances.
Please get in touch with our partner-led team to arrange a free, same-day consultation. We operate a network of offices around the country.
If you are considering liquidation for your limited company, taking advice from a licensed insolvency practitioner can help you understand your options.
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