There are times when it is possible to plan for the closure of a business but not in every case. Depending on the reasons for closure a business owner should seek the advice of an experienced professional such as an insolvency practitioner, a lawyer or the company accountant to ensure matters are handled correctly.
Typically a company is closed for the following reasons:
- A company is insolvent and unable to pay creditors
- Shareholders are looking to realise their investment
- Directors wish to leave the company and there is no succession plan
- The business is no longer viable
A company can be closed in several ways:
Members Voluntary Liquidation
This option is taken when the directors and shareholders decide to liquidate a business with sufficient assets to clear all debts within a 12 month period.
Creditors Voluntary Liquidation
If the directors and/or shareholders decide that a business is no longer viable or in a position to continue trade, then they can decide to pass a resolution to place the company into a Creditors Voluntary Liquidation.
A creditors meeting is held following which an orderly realisation of available assets will occur.
If sufficient funds are subsequently realised creditors claims are agreed and a distribution of the available funds will take place.
Compulsory liquidation occurs when one of the company’s creditors pursues payment by applying to Court for a winding up order.
Alternatively it may be used where the shareholders cannot agree that the company should go into Creditors Voluntary Liquidation.
Closing a company may not necessarily be an easy option. It requires a degree of preparation and understanding of areas such as tax liabilities, assets and the legal implications.