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Common Reasons for Voluntary Corporate Liquidation

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According to R3, many times insolvency could have been avoided had the company sought proper advice prior to filing bankruptcy or having been made bankrupt by creditors. Voluntary corporate liquidation is one of the ways in which a company in the UK can declare itself insolvent without going through bankruptcy court. The company will still be considered insolvent and will be held accountable to realise assets to pay debts, but it will not have to face the stigma of bankruptcy.

Whilst there are a number of reasons why a company may become insolvent, there are common causes that top the list. One of the main reasons why a company might become insolvent, according to R3, is due to a loss of market. Profit margins become eroded and the company is no longer able to pay debts. At this point, there are two options available which include filing bankruptcy or seeking company voluntary liquidation service through an Insolvency Practitioner.

Sometimes the company liquidation process is initiated due to shortcomings in management, fraud or poor financial decisions which result in loss of working capital. R3 also says that overspending (excessive overheads) is a common precursor to insolvency as are ventures, expansions and acquisitions which don't pay off.

The company liquidation process actually begins long before assets are realised. There are several meetings which must take place among members, members and creditors and with an Insolvency Practitioner who will oversee the entire process. The intent to file voluntary corporate liquidation must be posted in the Gazette as well as in two local newspapers. Unfortunately, this is just the beginning of the end. There are strict guidelines which must be adhered to which is why an IP should be consulted at the earliest opportunity after the decision to file insolvency has been made.

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