The directors of a company may elect to voluntarily liquidate the business in order to realise available assets for distribution to shareholders. It is also a useful tool for tax planning and as part of company reorganisations.
It is important for Directors to seek advice early. The earlier the advice is taken, the more options are generally available. Here is some more information on company voluntary liquidation:
Reasons For Voluntary Liquidation
There are a variety of reasons why a company will be placed into liquidation and these vary depending on the business circumstances. Commonly a directors’ voluntary liquidation will be undertaken to avoid a Winding Up Petition being issued by creditors, or as the directors recognise that the company is insolvent and there are no viable options for recovery.
It can also be used to extract any funds that shareholders might wish from the company after cessation of trading, or where a group structure is no longer required. It may also be used to take advantage of tax reliefs available.
Tax Reliefs
If a company has realised that its life has come to an end it can be dissolved by using the Members Voluntary Liquidation (MVL) procedure. This allows for distributions to shareholders to be taxed as capital, rather than income, so they are much more attractive from a tax perspective. This is particularly true if a shareholder qualifies for Entrepreneur’s Relief or Business Asset Disposal Relief as these reliefs allow them to pay only 10% tax on the final proceeds of a liquidation, instead of the usual income tax rate of up to 45%.

Special Purposes Entities
Special purpose entities, which can be trusts or companies, are used for a variety of legitimate purposes including structured risk management solutions. For example, a bank will set up a special purpose entity to house its asset risk in securitisations, which allows the bank to monetize the assets without having to hold them on its balance sheet.
However, these arrangements can also be abused for nefarious and fraudulent reasons. One such case is the Enron collapse, where the company clubbed together pools of low creditworthiness mortgages and sold them to investors as a way of increasing financial leverage.
Key employees
Employees who are owed wages, superannuation, holiday pay, annual leave, sick leave, long service leave or retrenchment pay become creditors of the company during liquidation. They are entitled to receive what they are owed, provided the debt is paid within certain timeframes set out in legislation. Employees may also be able to claim a statutory redundancy payment.
A business might choose to enter into liquidation as a strategic decision for many reasons, including retirement of owners, distribution of surplus assets, realization of shareholder value, simplification of corporate structure, resolution of disputes among shareholders, completion of a business venture and change in regulatory environment.

James Holloway is a journalist covering European politics, economic developments, and cross-border relations. His work focuses on policy changes, trade agreements, and key events shaping Europe’s future.