If you operate as a sole trader, then it is tempting to think you can cease trading without having to go through any formal process. However, this is often a mistake, especially if you have been offering professional services to your clients and the impact of them could still be felt long after you have ceased trading. Therefore, just as is the case if you are part of a formal business partnership or a company director, seeking the services of a professional insolvency practitioner is highly recommended. This way, sole traders can formally liquidate their business and not have to worry about any potential liabilities they may have coming to light after they stop trading.
In other words, business liquidation is different from simply not trading any longer. A business that has been dormant for years could, in theory, start trading again. However, when a business has been liquidated, it no longer continues to be a legal entity. According to Salient Insolvency, a leading insolvency guidance company, this is the main reason that partners, directors and sole traders want to liquidate their enterprises – they no longer want them to exist in a legal sense.
More often than not, people want to liquidate a business because they have chosen to retire or because they have other business interests that take up their time. Either way, continuing to own a business – even one that isn’t trading – can be an unwanted burden. There again, some people run businesses that have become insolvent, perhaps because their customer base has dwindled while their overheads have remained static. In such cases, liquidation proceedings might be started by other interested parties, such as creditors or other shareholders. Either way, you will need a professional in insolvency practice to help you wind up the company – to liquidate it – so that it can be fully closed down.
Please bear in mind that although it is advisable to get a professional in insolvency matters on board at an early stage because this will mean being able to review the full range of options open to you, it is possible to begin liquidating a business yourself. So long as three-quarters of the shareholders of a firm agree to it, then you can apply for a compulsory liquidation. Company directors who are the sole owner of a limited liability firm simply need to download the Comp 1 and Comp 2 forms from the government’s website and send them to a court to apply for a liquidation hearing. With the court fees paid and the judge agreeing to the liquidation, a professional liquidator will still be appointed by the court anyway. As such, directors are still not in control of the whole liquidation process.
Indeed, bringing a professional on board earlier could also mean a members’ voluntary liquidation or a creditors’ voluntary liquidation is explored. Both of these options may offer a better route into a business liquidation than a compulsory process. Finally, business liquidations will result in being struck off the Companies House register. Nevertheless, even dissolved firms can be restored under UK law.