The liquidation of a company simply means the end of a business, time to close up shop. This is a time when all company assets are liquidated and the termination of shareholders legal responsibilities (liabilities) of the company take place.
During the process of liquidation of a company a liquidator (appointed officer) is assigned to collect all company assets and settle any claims against the company, whilst ensuring any money owed to second parties (creditors) is paid off.
After the above is finished a company can then officially close.
Types of Liquidation of Company
There are three types of liquidation of a company. Two types revolve around an insolvent company (unable to pay debts) and one revolves around a solvent company. A solvent company is one which can pay all liabilities and does not have any legal proceedings against them.
The liquidation of a company types involving an insolvent company are:
- Creditors Voluntary Liquidation (CVL): The Creditors Voluntary Liquidation process is started by the Directors of a company. The decision is made to place a company into liquidation when it can’t pay creditors.
The name is misleading as it is not the creditors who call this procedure into action. In cases of CVL a creditors meeting must be called in which creditors are due at least 10 days of notice.
The creditors meeting must also be advertised in two daily newspapers circulating in the area where either the registered office or the principal place of business is situated at least 10 days before the meeting.
- Compulsory Liquidation: Compulsory Liquidation involves creditors who are owed money from the company taking matters to court. The company is forced to go into liquidation.
The liquidation of a company type involving a solvent company is:
- Members Voluntary Liquidation: A Members Voluntary Liquidation process is one in which the shareholders of a company willingly choose to place their business into liquidation. All debts are paid and the remainder of money goes to the directors/shareholders.
Effects of Liquidation of a Company
The effects of liquidation of a company are immediate. As soon as the company goes into liquidation all operations cease, an Official Assignee takes over everything and the Directors and Stakeholders of the company are stripped of being in charge.
The liquidation serves as a dismissal notice for all employees. In the cases of fixed-term contracts that require a notice period, employees are entitled to damages.
All parties involved in a liquidation case must cooperate with the liquidator, otherwise you can be prosecuted under law.
Make an Informed Decision
The latest insolvency statistics compiled by Deloitte for the third quarter of 2018 show that the number of Corporate insolvencies in 2018 is 557. Out of these cases it was Creditors Voluntary Liquidations that accounted for the majority, with 379 recorded in the period (68%).
As we now know CVL’s are decided by the Directors of a company and as part of this they need to arrange a board meeting to agree on liquidation. To make an informed decision it is not uncommon to require the advice and assistance of an accountancy firm.
At Kane Bergin & Company our Liquidation team can assist you in making an informed decision and provide you with a complete overview of your options. Call us today on (01) 969 6306 or email info@kanebergin.ie for assistance.