There are various reasons why a business may choose to undergo voluntary liquidation, ranging from financial difficulties and business restructuring to owner’s retirement or exit strategy, and the completion of a specific business objective.
This process involves legal requirements and careful planning, and may be undertaken through different types of voluntary liquidation, such as members’ voluntary liquidation (MVL) or creditors’ voluntary liquidation (CVL).
In this article, we will explore some of the common reasons why a business might opt for voluntary liquidation and highlight the importance of professional advice and compliance with relevant laws and regulations in this process
Reasons why a company may undergo voluntary liquidation
Here are 20 examples and reasons for a voluntary liquidation:
- Financial difficulties:
- Inability to pay debts or meet financial obligations.
- Declining revenues and increasing losses.
- Exhausted funding options and lack of capital to sustain operations.
- Business restructuring:
- Mergers or acquisitions where the decision is made to liquidate certain subsidiaries or divisions.
- Change in business direction or strategy, resulting in the need to wind up certain operations.
- Owner’s retirement or exit strategy:
- Business owner’s decision to retire and liquidate the business as part of their exit plan.
- Business owner’s desire to pursue other opportunities and close down the current business.
- Completion of a specific business objective:
- Winding up a project or a specific business venture that has been completed.
- Liquidation of a subsidiary or branch that is no longer viable or aligned with the company’s goals.
- Inability to pay creditors and meet financial obligations.
- Legal requirements to liquidate the company due to insolvency.
- Business dissolution due to partnership disputes:
- Irreconcilable differences between partners leading to a decision to dissolve the business and liquidate its assets.
- Retirement or death of a key business owner:
- Retirement or death of a key business owner resulting in the decision to liquidate the business.
- Compliance with legal requirements:
- Legal requirements to liquidate the company due to violation of laws or regulations.
- Dissolution of a company that has completed its intended purpose or term as per legal requirements.
- Tax considerations:
- Utilisation of tax benefits associated with voluntary liquidation, such as capital gains tax savings.
- Strategic liquidation to minimize tax liabilities or take advantage of tax planning opportunities.
- Strategic restructuring:
- Streamlining operations and assets by liquidating non-core businesses or underperforming assets.
- Consolidating resources and focusing on core competencies through liquidation of non-essential operations.
- Exit from a declining industry:
- Exiting a declining industry or market segment by liquidating the business and realizing the remaining value of assets.
- Succession planning:
- Planned liquidation of the business to facilitate smooth succession to the next generation or new management.
- Transitioning ownership and control of the business through voluntary liquidation.
- Business consolidation:
- Merging multiple businesses into a single entity by liquidating some of the existing businesses.
- Consolidating operations and assets of subsidiary companies into the parent company through voluntary liquidation.
- Shareholder agreement:
- Agreement among shareholders to dissolve the company and liquidate its assets.
- Liquidation of the business as per the terms and conditions specified in the shareholder agreement.
- Exit from a non-profitable venture:
- Decision to exit from a non-profitable venture or project by liquidating the business and realizing the remaining value of assets.
- Business entering into bankruptcy proceedings, resulting in the liquidation of assets to repay creditors.
- Court-mandated liquidation of assets as part of bankruptcy proceedings.
- Business winding up after completion of a joint venture:
- Winding up of a joint venture or partnership after the completion of the agreed-upon venture or project.
- Change in regulatory environment:
- Change in regulatory environment resulting in the need to liquidate the business due to non-compliance or inability to meet new regulatory requirements.
- Retirement or departure of a key employee:
- Retirement or departure of a key employee, such as the founder or CEO, leading to the decision to liquidate the business.
- Business consolidation for strategic realignment:
- Strategic realignment of the company’s operations or portfolio, resulting in the decision to liquidate certain assets
Reasons why a company may opt for a members voluntary liquidation
Here are 20 examples and reasons for a members voluntary liquidation:
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.