How Long Can a Company Stay in Liquidation?
If your company is facing financial difficulties, you could be looking at liquidation as a last resort. Liquidation results in the sale of all company assets, the complete closure of a company, and its removal from the Companies House Register.
Liquidation isn’t the positive outcome a business owner looks for, but if you’re in this position, it’s important to wind up operations in the best way possible. If that’s the case, you might be asking, ‘How long can a company stay in liquidation?’ as you plan the closure of a business.
To help you understand how long the process takes, the team at Irwin Insolvency has put together the following guide to company liquidation.
How Long Can a Company Remain Insolvent Before Being Liquidated?
If a company can no longer pay its debts as and when they fall due, the company has entered into a state of insolvency. This does not automatically result in the liquidation of a company, but it is a precursor to the process.
There are no regulations or laws that dictate exactly how long a company may remain insolvent before it’s liquidated. Because liquidation is a final step from which there is no turning back, company directors will first attempt to turn the business around and escape insolvency.
There are a number of insolvency tools that a licensed insolvency practitioner can use to do this, including:
- Company voluntary arrangements (CVAs)
- Business turnaround plans
- Corporate reconstruction
A company may remain insolvent for weeks, months or even years as it attempts to get its business back on track. A company voluntary arrangement often lasts 12 months, and it may be renewed at the end of this period. Similarly, an administrator is often appointed for 12 months to oversee a failing business.
How Long Does the Liquidation Process Take?
The liquidation process results in a company selling its assets and winding up operations. The minimum period of time it could take to liquidate a company is seven days. This is the statutory period within which company creditors have to tell any creditors that they have decided to liquidate, and this can only happen if 90 per cent of shareholders are in agreement.
There’s no maximum time period for liquidation though. It will depend on how long it takes to sell assets, how much opposition there is, and if the liquidation is taken through the courts. In reality, liquidation is likely to take anywhere between three months and two years. The larger the company is, the more complex the winding-up process will be and the longer the liquidation period will last.
There are three major types of liquidation, each of which takes different periods of time to complete. These are:
- Members’ voluntary liquidation (MVL)
- Creditors’ voluntary liquidation (CVL)
- Compulsory liquidation
A members’ voluntary liquidation process is different from other types of liquidation, in that it can only occur when the company is still solvent. It occurs when company directors and shareholders all agree that the company should be closed down, even if it’s still making a profit.
There could be several reasons for this. The shareholders could wish to sell the company’s assets for a profit, or they could be retiring. A members’ voluntary liquidation is the quickest and simplest liquidation, as all shareholders are in agreement. This could take seven days to several months, depending on how long it takes to find a buyer.
A creditors’ voluntary liquidation happens when company directors and shareholders realise they are in an untenable position. The company is insolvent, and they decide to liquidate. This gives the directors control over the process, but creditors who stand to lose out could still fight it. A CVL could take anywhere from several months to a whole year to complete.
A compulsory liquidation occurs when creditors force an insolvent company to close in order to recoup debts from the sale of assets. This form of liquidation may take the longest and could drag on for years if fought in a court of law.
Contact Irwin Insolvency for More Information on Company Liquidations
If you’re asking the question, ‘How long can a company stay in liquidation?’ Irwin Insolvency has the answers.
Our team of experienced insolvency practitioners are ready to help your company through financial difficulties, and we have the expertise and knowledge needed to save you from liquidation.
Contact Irwin Insolvency today to arrange your no-obligation consultation.