When a company can no longer afford to operate, it undergoes solvent liquidation. Solvent Liquidation is a tax-efficient method of divesting a part of a company at the end of its life span and distributing surplus funds. This option is only available to companies with more assets than liabilities, including companies with enough cash to cover bills and outgoings once they close down and liquidate all assets. If the company is qualified for liquidation and able to pay off all remaining debts, managing to stay away from the minus figures, then a formal process called the Members Voluntary Liquidation begins.
The ESC C16
The Extra Statutory Concession (ESC C16) used to be available until the 1st of March 2012. It allowed excess funds from a non-operational company to be taxed as capital gains (CGT), which often resulted to lower tax bills. Nowadays, a formal Members Voluntary Liquidation is needed.
During this period, the company should halt all dealings and stop running the business. They should cease carrying out any transactions and trades. By this time, all their assets should have also been listed.
The Liquidation Team
Afterwards, once the company is deemed fit for liquidation, a liquidation team is appointed. This liquidation team makes sure everything goes just as planned. They figure out the exact value of the company’s assets, which usually takes a long while. The time the team spends on inventory of assets is a chance for shareholders to invest in a business themselves or attempt a reincarnation of the existing business.
After this, the company is officially devoid and scratched out of existence. The members can go off to do as they please. In some occasions, they collaborate on starting a new company, learning from previous mistakes. However, there is no requirement to do this on their part. Most probably, many of the members have learned a lesson on the harsh realities of commerce and the uncertainty of success.