Step 1: Decision made to close the company

The directors and Shareholders of the company agree that they want to stop trading and close the business. A special company resolution is signed to formalise the process.

The directors make a declaration that the company is solvent and all creditors will be able to be paid in full within 12 months with cash of the proceeds of the sale of the company’s assets.

Step 2: Liquidator Appointed

In order to liquidate and formally close a company, an insolvency practitioner must be appointed who will act as the liquidator. The liquidator will first undertake an analysis of the business to ensure that the company is solvent.

If the liquidator discovers that the company cannot pay its debts and is actually insolvent, a creditors meeting must be called within 28 days. Creditors will then vote to appoint a liquidator (which may not be the insolvency practitioner appointed by the directors). The closure process will then be changed to a Creditors Voluntary Liquidation

The insolvency practitioner will advertise the fact that the company is to be liquidated in the London Gazette and in the local newspaper where the company has its principle place of business

Step 3: Employees made redundant

One of the first jobs undertaken by the liquidator is to make the employees of the company redundant. The company will be required to give notice to its employees as per their contract terms.

Any redundancy payments due will be paid to employees by the liquidator.

Given that all redundancy notices and payments are made as per the employee’s terms and conditions of employment, it is unlikely that employees will have no right of appeal or claims for unfair dismissal against the company.

Step 4: Creditors paid in full

The liquidator will ensure that a valuation is undertaken of all of the company’s assets including and buildings, stock and equipment.

All of the assets will then be sold for a reasonable market price and any outstanding creditors paid in full. All creditors must be paid in full within 12 months.

Step 5: Liquidator reports on directors

The liquidator has a duty to make a report on the conduct of the directors of the business. The report is known as the director’s disqualification report (or D1 report).

The report will be issued to the insolvency service and will state whether or not in the liquidator’s opinion, the directors have acted properly. If not, the report may recommend that further investigation is required by the insolvency service.

In a member’s voluntary liquidation, it would be very unusual for the liquidator to believe that any directors had acted improperly.