One of the concerns that my clients raise with me when they get into a dispute with a limited company, is that the company can simply shut down to avoid paying the debt but then start again the following day under a slightly different name. People think that unscrupulous tradesmen can wind up one company and then incorporate a new company, without any liability for the original claim. That is not generally true and the process involved in winding up a company is not as straight forward as urban myth would have you believe.
Liquidation can be carried out by the company itself in one of two ways; Members Voluntary Liquidation (“MVL”) and Creditors Voluntary Liquidation (“CVL”).
MVL.
An MVL is a process whereby the directors of the company decide to close down the company for, normally, personal reasons at a point when the company is still solvent. The shareholders have to pass a resolution (with 75% approval) whereby the company is wound up and liquidators are appointed. The company can only do this if the majority of directors sign a declaration of solvency.
CVL.
This process can only be followed if the company is insolvent. The company would also have to pass a special resolution to wind up the company.
Therefore, the company will, in the case of an MVL, have to deal with any claim so as to prove it is solvent. In the case of CVL it may be possible to wind up the company and write off any claim, but the company itself would already be in financial trouble. i.e. It could not wind up the company simply to avoid paying a specific claim against it.
Administration.
It is more likely that the process of a company going into administration is more akin to closing down and then starting up as a new company the following day. This is , again, not entirely the case but it can seem that way to the outsider, but administration is a different process altogether and requires a totally separate discussion.
Please do contact me if you require any advice on corporate and personal insolvency.
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