What does it mean if a company files for insolvency?

UK company liquidation involves closing down a company’s activities. A company may wind up due to various reasons which may be voluntary or involuntary.

  1. Involuntary liquidation.

It is also known as compulsory liquidation. In this type of liquidation, a party files a petition in court to have the company liquidated. The party may be shareholders, creditors or government officials. There are various reasons that may lead a company to be liquidated. These include; the company not being able to pay its debts, the company’s liabilities exceeding its assets or the company failing to pay its taxes. UK company liquidation process is structured and the courts decide whether and how the company is liquidated. After liquidation, the company’s assets are sold and all legal petitions against the company becomes void.

  1. Voluntary liquidation.

There are two types of voluntary liquidation which include; creditors voluntary liquidation and members voluntary liquidation.

  1. Members liquidation.

In this type of UK company liquidation, members of the company decide to liquidate the company voluntarily. A company may be able to pay its debts but the members nonetheless may decide to wind up its activities and liquidate it. In another case, the company may be in to much debt that the only viable choice is liquidating the company. In this case, the company’s debt may be too large to be recovered and repaid. With the company continuing to operate, it may accumulate more debt. The wise decision would be to liquidate it and the company’s members will initiate the liquidation of the company.

  1. Creditors liquidation.

In this type of liquidation, the company will involve its creditors in liquidating the company. The company may be unable to repay its creditors and will decide with its creditors to liquidate the company so as to raise funds to pay its creditors. After liquidating the company, its assets are sold and used to repay its debts. Any money left after paying its debts is divided among its shareholders. Voluntary liquidation in UK company liquidation is well planned and the company has access to liquidation professionals throughout the process of liquidation.

UK company liquidation does not have a fixed time to be completed since the more complex the company is, the longer it will take to liquidate it and dissolve it. Once the company is liquidated, it ceases to exist and it is removed from the UK companies register at Companies House. Money owned by the company goes to the state if it will not have been shared among the shareholders when the company is deregistered.