What happens to the company in a creditors voluntary liquidation?

What is a creditors voluntary liquidation?

A creditors voluntary liquidation is used by the company as a way of bringing to an end a company that has insolvency problems, which it is unlikely to recover from. A creditors voluntary liquidation is a good way of taking control of the situation bringing about the correct and orderly winding down of the company, enabling creditors to be repaid as far as possible, and all matters dealt with before the dissolution of the company at Companies House in due course.

What happens when the company is wound up?

  • The company appoints a liquidator who will take control over the company from the directors and any other persons involved.
    The liquidator’s role in simple terms is to collect in the assets of the company in order to distribute the proceeds of liquidation sales for the benefit of creditors and, if there is any surplus left, for the benefit of shareholders.
  • The usual effect of liquidation on the company is an immediate end to trade, although this is not always the case.
  • The directors remain in office during the liquidation, but their powers cease unless the liquidator particularly wants to give them powers, either full or limited.  Directors must cooperate fully with the liquidator to ensure that the company is wound up properly and that creditors are paid as far as possible.  There may be legal consequences for them if they don’t.
  • The liquidator acts as an agent of the company, so any transactions remain in the company name during the liquidation.
  • Shares in the company can’t be transferred unless the liquidator specifically allows this.

The effect on a company’s employees

Whilst employees are not automatically dismissed in a voluntary winding up, the fact that the company has ceased trading will mean that their employment will cease. An employee can however bring appropriate claims against the company in liquidation if necessary.

Investigation of company directors

A liquidator is obliged under insolvency legislation to provide a report to the government on whether they consider that there had been any misconduct by a director of the company. If so, then it is possible that the director may be the subject of directors disqualification proceedings.  If found to have been guilty of any misconduct, they could be disqualified as a director for anywhere between 2 and 15 years, depending on the conduct.

Prohibition on reuse of the company name

The reuse of the name of a company that is in liquidation is generally prohibited for 5 years from the date of liquidation. However, there are exceptions to this and any directors who wish to re-use the name may be able to reuse the name as long as they follow the correct statutory procedure.

Any breach of this can incur hefty financial liabilities for the director personally, or involve a custodial sentence. It is vital that any director who wishes to reuse a company name or to be a director in the future if they have faced disqualification take legal advice on how to do this. Our team at Francis Wilks & Jones frequently act for directors in this position and can help if this is needed.

Contact the company liquidation experts today

The team at Francis Wilks & Jones deal with creditors voluntary liquidation on a daily basis and can advise and act for you on all aspects of a voluntary liquidation, both for the company and for the individuals concerned. Contact our team today to discuss your situation in confidence.