This guide is for anyone who is wondering ‘how long does liquidation take?’. If you do not want to continue your business, or if you think it’s in trouble and cannot continue, then you need to learn about your options. One area you need to consider is the liquidation of companies. The purpose of this article is to explain in simple language what company liquidation is and when its use might be appropriate.
Liquidation is simply the term that describes the process of closing a business. The company’s trading is discontinued and its assets are sold and converted into cash. Depending on whether the company to be closed is solvent or insolvent, there are different types of liquidation. There are two simple tests to determine if a company is a solvent. The cash flow test and the balance sheet test. The cash flow test asks if the company can pay its creditors on debt maturity. If the answer is no, the company is insolvent. The balance sheet test asks if there are more assets than the money owed to the creditors. If the answer is no, the business is insolvent.
So how long does liquidation take? If the company to be closed is solvent, the liquidation procedure to be used is called Members Voluntary Liquidation or MVL for short. Simply put, the company’s members or shareholders decide to close it. The company’s directors must make a sworn statement that the company is solvent, and if assets must be sold to settle debts, this must be possible within 12 months. The deal is closed and all outstanding creditors are paid. Remaining assets or cash then become the property of the company’s shareholders with what they want.
You may be wondering why a solvent business is ever closed. There are a number of reasons why this would happen. Maybe the owner just wants to close them because they do not want to do it anymore. Maybe the company is a family business where the owners/parents retired and children or family members do not want to run the business. Alternatively, it may be necessary to rationalize a group of companies that require the closure of a solvent business and the transfer of its assets to another company within the group.
If a company is insolvent and no further investments can be found or other agreements cannot be reached with the creditors, measures must be taken to shut down the company. Under these circumstances, there are two possible types of liquidation proceedings:
The first of these is the creditor-voluntary liquidation or CVL for short. A creditor voluntary liquidation is usually started by the directors and/or shareholders of the company. Shareholders appoint a liquidator to convene a meeting of creditors of the Company to inform them of the Company’s insolvency and to allow them to appoint a liquidator of their choice. An expert can answer you on ‘how long does liquidation take?’. As such, the liquidation is approved by the creditors and works for them. The primary task of the liquidator is to dispose of the assets of the Company and to distribute any proceeds to the creditors of the Company. The liquidator will close the company, cancel all outstanding leases and fire the remaining employees.