When a company cannot pay its bills on time, as and when due, under the Insolvency Act 1986, technically your company is insolvent, or in a state of insolvency. This is known as cash flow insolvency.

Another test for insolvency is where the assets of the company are worth less than the liabilities, which is known as balance sheet insolvency.

It’s not rocket science. Cash is king, and cash flow problems are the most frequent cause of company insolvency.

A small business is a fragile entity, that doesn’t have a large capital base to sustain it through difficult times.

Once a company gets behind with it’s cash flow, it is in a catch 22 situation, where it cannot trade out of the position, because it needs additional cash to fund the trading – at which point, the directors are faced with the choice of injecting more funds, which can often be throwing good money after bad, or looking at formal insolvency options such as liquidation.

Liquidation is the formal legal process to end the life of a Limited Company.

A company can be placed into voluntary liquidation by the directors and shareholders.

If the company is insolvent, then there is also a meeting of creditors.

The Insolvency Direct online liquidation system deals with all these formalities.

Liquidation is not the end of the company; it still exists, for the moment, in a protected state, while the Liquidator deals with the winding-up of its business affairs.

As soon as a Liquidator has been appointed, the Directors duties and powers come to an end and they are in a position to make a fresh start.

Once the liquidation is complete, the company is dissolved, struck off the register at Companies House, and ceases to exist.

Most small company liquidations are routine and take around 6-12 months to complete. In practical terms, after the meeting of creditors, the directors will have no further involvement with the company, unless the Liquidator requires some assistance with the winding-up.

The cost of liquidation is often uncertain as in - How long is a piece of string?

Generally speaking, the bigger the company, the higher the fee is a rough rule of thumb.

Insolvency Direct offers competitive quotes starting from £2,450 plus VAT (including London Gazette adverts and insurance bond), rising in relation to the size of the company's debts.

The Fees charged must be approved by the creditors.

If the company has assets that can be sold, the Liquidator’s fee will be charged against those funds, as a cost of the liquidation.

If the company has no assets, then the liquidation costs are payable as a deposit into our client account. The Insolvency Direct system will calculate the cost of liquidation and if this is acceptable payment can be made via the online liquidation system or by card payment over the phone.

Directors and shareholders are not liable for the debts of the company, unless they have signed personal guarantees to the bank, suppliers, landlord, finance lease, etc.

To put things in perspective, operating as a sole-trader is the equivalent of being a director of a company and giving a personal guarantee to every party the company ever deals with.

Companies are disposable by their very nature.

The Limited in Limited Company refers to the fact that the shareholders, directors, and staff of a company are not personally liable for the debts of the company.

Personal guarantees cannot be extinguished by liquidation, they are a personal matter and have to be dealt with outside the liquidation process.

So the risk of personal financial implications for Directors has to be assessed.

Other than possible liabilities under personal guarantees, the main risk of negative impact to the Directors of a company placed into liquidation is if they are subject to disqualification proceedings by the Insolvency Service, if they consider there has been serious mismanagement of the company, that breached provisions of the Companies Act, Insolvency Act and Company Directors Disqualification Act.

You form a company online, so now you can liquidate a company online too.

The Online Liquidation Process

1. Two Minute Assessment — Is liquidation the right option for your company? Find out by slotting some "ball-park" figures into our Liquidation Wizard, it’s easy, quick, and calculates the overall financial position.

2. Online Liquidation — Create an account on our secure, encrypted online system, and input the information we need to process the company into liquidation.

Our system is linked to Companies House which speeds up the process.

Once you have added additional details about the Bank, HMRC, other creditors and any assets, and your account information has been verified by your account manager, we will issue the first set of documents for electronic signature.

You can log back in anytime if you need to. Discuss any queries with your dedicated account manager.

3. Appointing your Liquidator — This is done at meetings of the shareholders and creditors, so try not to worry about it, it will not be the ordeal you fear, rather it is likely to be an anti-climax!

Liquidation is an easy, simple legal process, where the Directors pass the company into the hands of a Liquidator, and they can make a fresh start in a new company, or go out and get a job if that makes more sense.

Liquidating your company online follows the same procedure as liquidating offline. The advantage to you, though, is that liquidating online with Insolvency Direct is cheaper, faster, easier and more convenient for you.

Generally speaking, it makes sense to speak to an advisor to talk through your company and business situation, especially for larger cases.

Perhaps you are concerned about personal guarantees, a bounce back loan, or a deal to purchase the assets of the company (stock, vehicles, goodwill, websites, company name).

If that is the case, then give us a call to discuss the details of your company’s situation, to establish whether there are different options that you should consider, and to ensure liquidation is the correct course before proceeding.

However, for straightforward cases, where your company is small, and has no assets to be dealt with, and you are already satisfied that liquidation is the correct and responsible course of action, you can proceed to place your company into liquidation now.

Insolvency Direct offers an efficient, flexible and cost effective online system to liquidate small companies with the minimum of fuss and expense.

We understand that you are worried about taking this step, understandably so. But especially for smaller companies, there is usually nothing to worry about; our team take the company and its problems off your hands and relieve you of your burden.

Liquidation is a routine procedure, and Insolvency Direct's secure online liquidation system ensures everything is done correctly according to the required legal process.

If you are worried about any matter, please call to discuss in confidence at any point in the process.