How Long Does Liquidation Take? A Complete Guide to the Process

Liquidation is a formal insolvency procedure that involves closing down a company and selling its assets to pay off creditors. If you're facing financial difficulties, one of the most pressing questions you might have is: how long does liquidation take?

The answer depends on several factors, including the type of liquidation, the complexity of the company's finances, and the time it takes to sell assets and settle with creditors. In this article, we'll explore the different types of liquidation, the factors that affect the timeframe, and what business owners can expect during the process.

Types of Liquidation

There are three primary types of liquidation in the UK, and each has its own process and timeline:

Creditors’ Voluntary Liquidation (CVL):
This is initiated by the directors of a company when they recognise that the business is insolvent and cannot continue to trade. A CVL is voluntary, but once initiated, control is handed over to a licensed Insolvency Practitioner, like Molly Monks, who takes charge of selling assets and repaying creditors.

Compulsory Liquidation:
This is a court-ordered liquidation initiated by creditors when they petition the court to wind up an insolvent company. If the court agrees, the Official Receiver or an appointed Insolvency Practitioner oversees the liquidation process.

Members’ Voluntary Liquidation (MVL):
This type of liquidation is used when a company is solvent but the directors or shareholders decide to close it down. In an MVL, the company can pay all its debts in full, and the remaining assets are distributed among shareholders.

How Long Does Liquidation Take?

The time it takes to complete a liquidation process varies depending on the type of liquidation and the specific circumstances of the business. Below is a breakdown of each type and its expected timeline:

Creditors' Voluntary Liquidation (CVL)

A CVL can take anywhere from 6 to 18 months, depending on the complexity of the company’s finances. Here’s a general timeline:

• Initial Consultation: This usually happens quickly, often within a few days of the directors deciding that the business is insolvent.
• Appointment of Liquidator: An Insolvency Practitioner is formally appointed to oversee the liquidation. This can take a couple of weeks from the point of decision.
• Asset Sale and Debt Repayment: Selling company assets and settling with creditors can take several months. The more complex the assets, the longer the process.
• Final Closure: After assets are sold and debts paid, the company is officially dissolved. This final step may take additional time depending on the specifics of the case.

Compulsory Liquidation

Compulsory liquidation tends to be slower and more complex, often taking between 24 to 36 months or more. The timeline looks like this:

• Winding-Up Petition: Creditors file a winding-up petition in court, which can take weeks or months, depending on court schedules.
• Court Decision: Once the court orders the liquidation, the Official Receiver or an appointed Insolvency Practitioner takes control.
• Asset Realisation and Distribution: The liquidation proceeds with the sale of company assets, which can be time-consuming if the business holds complex or hard-to-sell assets.
• Closure: The company is dissolved, but this step may take time, especially if there are disputes among creditors or ongoing investigations into the company’s affairs.

Members’ Voluntary Liquidation (MVL)

MVL is typically the quickest form of liquidation, as the company is solvent and there is no need to prioritise creditor repayments. An MVL can be completed within 6 to 12 months.

• Initial Steps: Directors must swear a declaration of solvency, confirming the company can repay its debts within 12 months. This declaration is followed by the appointment of an Insolvency Practitioner.
• Asset Sale and Distribution: The liquidator sells the company’s assets and distributes any remaining funds to shareholders.
• Final Dissolution: Once all assets are distributed and debts settled, the company is dissolved.
• Factors That Affect the Liquidation Timeline

Several factors can influence how long liquidation takes:

• Complexity of Assets: If the business owns complex assets such as property, intellectual property, or overseas investments, the process of selling these can take longer.
• Number of Creditors: The more creditors a company has, the longer it may take to negotiate settlements and distribute funds.
• Disputes or Investigations: In cases where there are disputes over asset ownership or allegations of wrongful trading, the liquidation process can be delayed while these matters are investigated.
• Court Schedules: In compulsory liquidation cases, court availability can affect how quickly a winding-up petition is heard and resolved.

What to Expect During Liquidation

Liquidation can be a stressful time for business owners, but understanding the process can help ease concerns. Once a company enters liquidation, directors are relieved of their duties, and the Insolvency Practitioner takes over. The goal is to sell assets, repay creditors as much as possible, and, ultimately, close the company. During this time, the liquidator will communicate regularly with creditors and directors, providing updates on the progress of the case.

It’s important to remember that once a company is liquidated, it is permanently closed. Directors of insolvent companies should also be aware that they may be investigated for wrongful trading if they allowed the business to continue trading while insolvent.

Conclusion

The length of time it takes for liquidation to be completed depends on the type of liquidation and the company’s circumstances. CVLs and MVLs tend to be faster than compulsory liquidation, but factors like asset complexity and creditor disputes can prolong the process. Engaging a qualified Insolvency Practitioner, like Molly Monks, early on can help streamline the liquidation and ensure compliance with all legal requirements.

If you're considering liquidation, seek professional advice to understand the timeline and process for your specific situation.

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