John A Waller
Updated October 3rd, 2021.
Advantages & Disadvantages of Liquidation?
Advantages & Disadvantages of Liquidation? Though complex, however simple to execute, allowing directors to draw a line and creditors to crystallise their debtors through using Licensed Insolvency Practioners.
It is important that company directors understand the impact liquidation has on you and your business.
Directors often avoid liquidating an insolvent company, expecting perhaps it is best to trade on, while an insolvent will improve matters for them and creditors. However, this is probably the worst thing a director can consider without first seeking advice from a licensed insolvency practitioner.
So! What are the Pros & Cons of Liquidation?
HBG Advisory provides initial Free Insolvency Advice.
Should I consider liquidation?
Liquidation of a limited company 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 explained 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 company’s creditor 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 that your company ceases to exist. For further reading, please view ‘A company in liquidation‘.
As a company director, it is important to understand the true meaning of what is limited liability when operating a limited company.
Liquidating A Business and the Advantages
- HM Revenue & Customs will no longer pursue directors for PAYE or VAT;
- The need to carry out statutory filing duties cease;
- Relatively low cost to carry out;
- Directors and companies avoid court processes:
- Onerous leases 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 judgments (CCJ’s) and outstanding debt recovery stop;
- Excludes burden from directors & stakeholders;
- Former employees will claim 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 the liquidation.
For further reading, please view:
‘How do I liquidate my limited company‘.
‘Advantages of liquidating an insolvent company‘.
Pros & Cons of Liquidation – 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 licenses 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 account The Insolvency Act 1986, sections 216 and 217;
- Dividends paid incorrectly to the shareholder will need to repay to the company; ( Paid when the company had no retained profits to pay a dividend, a common error);
- Repayment of directors overdrawn accounts, as they are an asset of the company; overdrawn directors’ loan accounts will have to repay;
- The companies trade suppliers and other creditors, therefore face 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 company’s creditors;
- Losses accumulated for tax purposes remain forfeited once liquidated; debts personally guaranteed to require paying.
Advantages & Disadvantages Of Company Liquidation? – Why Go into Liquidation?
CVL advantages and disadvantages:-
- 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 with outstanding redundancy, holiday pay, unpaid wages and notice pay can claim from the government redundancy payment service. The appointed liquidator’s team will support claiming these monies.
Company Liquidation Employee Rights
When an employer goes into either voluntary liquidation or compulsory liquidation, it’s a stressful time for the employees.
Fortunately, there are special arrangements for workers who lose their jobs when their company goes into liquidation. The National Insurance Fund will pay redundancy and other contractual payments within limits. It aims to pay 80% of claims within three weeks of the claim date.
However, payments are subject to legal limits. The maximum weekly claim amount is £464.00 per week, up to a predefined period.
However, the scheme does not apply to self-employed contractors or agency workers.
Advantages & Disadvantages of Liquidation? – Advice offered by non-regulated companies
Unlicensed debt advisers exist in the UK insolvency industry. The COVID19 coronavirus pandemic has encouraged many companies to start-up whose purpose may not necessarily support your failing distressed limited business. Take extreme care.
At HBG Advisory, we employ licensed insolvency practitioners. Please view them ‘Meet The Team at HBG Advisory‘.
Membership bodies in which we are members can be found at the foot of each website.
Study the companies that offer assistance with licensed insolvency practitioners regulated by: