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What’s the difference between liquidation and ceased trading?

Liquidation and ceased trading both result in the closure of a company, and its removal from the register at Companies House. It can be a little confusing when a company ceases trade, however, as there are a number of avenues open to it depending on its financial position and the intentions of directors.

What’s the difference between liquidation and ceased trading?

The directors could intend to wind up their company prior to striking it off the register voluntarily. Insolvency law also states that a company must cease trading when it becomes insolvent, however, so let’s look at each term a little closer.

What is liquidation?

Liquidation means a company’s assets are sold prior to closure. Depending on whether the company is solvent or insolvent, the proceeds of sale may be distributed among the shareholders (solvent liquidation) or used to repay creditors as far as possible (insolvent liquidation).

Liquidation is often used in the context of an insolvent company that either voluntarily liquidates its assets via a Creditors’ Voluntary Liquidation (CVL), or is forced into compulsory liquidation by a creditor.

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What is ‘ceased trading?’

Ceased trading is a general term that can indicate a number of different scenarios. As we mentioned earlier, the directors may have had to cease trading because the company is insolvent, in which case liquidation will follow, or they could have ceased trade with a view to dissolving their company.

Company dissolution is a process whereby business affairs such as the planned sale of assets is dealt with prior to the company being wound up, but it must be in a solvent position to do this.

For more information on company liquidation and ceased trading, contact our expert advisers at Redundancy Claims UK. We will ensure you understand the ramifications of each process, and whether it applies to your company’s situation.

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