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Advantages & Disadvantages Of Company Liquidation?

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Written by

John A Waller

Director

Updated 30th April 2021.

Advantages & Disadvantages of Company Liquidation?

Advantages & Disadvantages of Company Liquidation? Though complex, however simple to execute, allowing directors to draw a line and creditors to therefore crystallise their debtors.

Should I consider liquidation?

Liquidation is an advantageous legal method of closing a limited company, no longer capable of trading financially. Not used for solvent companies typically, or if the limited company is viable and a restructure is plausible, including a company voluntary arrangement (CVA) or using a company administration. Thus saving the company and allowing it to continue trading. Something a liquidation does not offer. 

Limited companies registered in England and Wales may either liquidate voluntarily or be compulsorily liquidated by a creditor of the company who remains unpaid.

When rationalising liquidating your limited company, please note the seriousness of the decision. HBG Advisory strongly recommends you seek the advice of qualified Insolvency Practitioners, like those in HBG Advisory.

The main disadvantage of liquidation is your company ceases to exist. For further reading, please view ‘A company in liquidation‘.

Liquidating A Business and the Advantages

  • The need to carry out therefore statutory filing duties cease;
  • The closure is offered for the company while enduring financial operating issues. Legally for good.
  • If your company has creditor pressure? Then the can be closed, and the appointed liquidator then deals with creditors, not the former directors;
  • Directors, once removed from office, may either set up a new trading entity, seek new employment or retire;
  • County court judgements (CCJ’s) and outstanding debt recovery stop;
  • Excludes burden from directors & stakeholders;
  • Former employees will claim any unpaid salary, holiday pay, notice pay, and government fund redundancy. However, this is subject to some limits;
  • HMRC deal with the liquidator, not the directors now, for the companies arrears of tax;
  • Directors’ duty to deal with creditors of the company stops, though creditors are personally guaranteed by the director, we require the director to deal with outside of the liquidation.

For further reading, please view:

How do I  liquidate my company‘.

Advantages of liquidating an insolvent company‘.

Disadvantages To a Company Liquidation

Liquidation also has its disadvantages, including;

  • The business ceases trading immediately.
  • All companies assets are sold to repay creditors;
  • Director guarantees will be required to be repaid if a shortfall occurs;
  • The companies, employees and directors are all made redundant;
  • Liquidation wipes out the former business’s satisfactory standing, trading licences and possibly other assets valued while solvent now with no value once the company liquidated;
  • Using the former name of the business’s former name is not allowed. Take careful legal advice if you wish to explore further, taking into consideration The Insolvency Act 1986, sections 216 and 217;
  • Dividends paid to the shareholder incorrectly will need repaying to the company; ( Paid when the company had no retained profits to pay a dividend, a common error);
  • Repayment of directors overdrawn accounts requires repaying in liquidation, as they are an asset of the company; overdrawn directors’ loan accounts will have to repay.
  • The companies trade suppliers and other creditors thereforeface losing money;
  • Directors face wrongful claims if traded insolvent;
  • Liquidation of a limited company has no impact on the director’s credit score. However, the information is retained and made public at Companies House;
  • A Company Administration remains faster to set up and offers potentially better returns for the companies creditors;
  • Losses accumulated for tax purposes remain forfeited once liquidated; debts personally guaranteed to require paying;

Why Go into Liquidation?- Advantages & Disadvantages Of Company Liquidation?

  • Business unable to pay its creditors as and when they fall due;
  • Its liabilities are more significant than its assets;
  • Directors concerned company fails to remain or maybe enter into trading while insolvent
  • Directors of the company no longer can cope with operating the business due to various circumstances, including changes to its market or loss of essential team members;
  • Insufficient succession;
  • Claims against the company are unmanageable.
  • The company trades at a loss and remains no longer viable nor able to have a turnaround;

Former employees of the liquidated company who have outstanding redundancy, holiday pay, unpaid wages, and notice pay, may claim from the Government Redundancy Payments Service. The appointed liquidator’s team will offer support claiming these monies. Former directors may claim subject to conditions. For further advice, view redundancyclaim.com.

Please read; How do I liquidate my limited company.

Advice offered by non-regulated companies

Unlicensed debt advisors exist in the UK Insolvency industry. The Coronavirus COVID19 pandemic has encouraged many companies to start-up whose purpose may not necessarily support your failing distressed limited company. Take extreme care.

We at HBG Advisory employ licensed Insolvency Practitioners. Please view them ‘Meet The Team at HBG Advisory‘.

Membership bodies we are members of may be found at the foot of each web page.

Check the companies offering help employ Licensed Insolvency Practitioners regulated with:


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