Accelerated liquidation is a quick way to wind up a company. To initiate this form of liquidation, the general meeting must pass a resolution to wind up the company. The application can then be submitted to the Chamber of Commerce Form 17a “dissolution of a company, legal entity or partnership” must be filed. Once the resolution has been passed, the company effectively ceases to exist immediately.
When?
A turbo liquidation does not involve a winding-up phase. Consequently, no liquidator is appointed. It is therefore only possible to apply this method of liquidation if the company no longer has any assets. Assets include all items on the balance sheet, such as goodwill, receivables (such as trade receivables) and cash at bank or in hand.
A major advantage of turbo liquidation is that it is a rapid (turbo) process. After all, there is no need to appoint a liquidator, the assets do not need to be distributed, and there is no requirement to publish a notice in a national newspaper. In a standard liquidation procedure, one must wait a further two months after publication before the court can issue a declaration of no objection.
Turbo with benefits
If the company is wound up whilst it still has assets, this may have adverse consequences. Firstly, this may mean that the company is never legally wound up. Furthermore, if the company has debts, it runs the risk of a petition for bankruptcy being filed. This is because the company is deemed to be in a state of insolvency.
Director personally liable
Directors must perform their duties properly. If they fail to do so, they may be held personally liable. This applies both within and outside of insolvency proceedings. For example, the board is responsible for publishing the annual accounts and is under a duty to keep proper records. A director who has assumed that the company has been wound up ceases to keep accounts and no longer publishes annual accounts. If it transpires that, because there are assets, the company was never actually wound up, this director faces a problem. If creditors do in fact file for bankruptcy, this will result in the liquidator holding the director personally liable for the shortfall in the estate. The company’s rapid liquidation may then turn into a rapid liquidation of the director.
Conclusion
A ‘turbo liquidation’ can be a straightforward way to wind up a company. However, you should always be fully aware of whether there are any remaining assets. If there are, and a decision is nevertheless made to proceed with a turbo liquidation, this could have significant consequences for the director’s personal liability.
You should therefore always seek advice from your adviser.