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COVID-19 Has Made My Company Insolvent

Covid-19 has made my company insolvent. Written by John A Waller, Consultant. Reviewed: July 16th, 2024.

Since the UK economy has reopened since the onset of the COVID-19 pandemic, many companies have voiced that COVID-19 has made them insolvent. So, what are the causes of business insolvency in the UK?

Many directors are worried about closing companies affected by the COVID-19 pandemic.

Covid-19 has made my company insolvent – Advice for directors

The current coronavirus COVID-19 pandemic continues to cause severe financial hardship for businesses in the UK and the rest of the world. 

Currently, there are no restrictions on coronavirus (COVID-19).

Health has come above trade, but the impact will be far-reaching, and many businesses will fail through no fault of their own.

Therefore, a cash shortage is a massive issue for businesses, even under normal trading conditions. It can quickly cause cash insolvency, as paying bills when they fall due becomes impossible.

Balance sheet insolvency can also be a problem if your liabilities exceed the value of your business assets. So, what should you consider if your business is insolvent and you believe it requires liquidation?

Bounce Back Loans and COVID-19

Many businesses remain unable to repay their loan. However, the loan terms specify that the borrower is not liable for the debt if the business fails.

Bounce back loans and liquidation do not affect directors personally.

Covid-19 has made my company insolvent – Seek professional assistance to check for alternatives.

A licensed insolvency practitioner (IP) will carefully assess your company’s financial situation and might offer alternatives to liquidation. Depending on your circumstances, here are a few options that could be open to you:

If there are no other options left, however, and regrettably, you need to liquidate, you should choose voluntary insolvent liquidation rather than enforced liquidation by one of your creditors.

Creditors’ Voluntary Liquidation (CVL) vs compulsory liquidation

If liquidation is, therefore, the only remaining option. Your company should enter Creditors’ Voluntary Liquidation CVL rather than face a winding-up order leading to compulsory liquidation with the official receiver appointed.

By entering liquidation voluntarily, you’re placing creditor interests first. Although the procedure attracts professional fees, you may be eligible to claim redundancy pay and other entitlements as a director, which could help pay them.

Both forms of insolvent liquidation involve an investigation into director conduct, but these investigations are more stringent in compulsory liquidation. A further benefit of CVL is that you have more control and can choose your insolvency practitioner to oversee the process.

However, the company’s members passed a special resolution to place the company into voluntary liquidation and appoint a liquidator.

Appointing a licensed insolvency practitioner during COVID-19

A licensed insolvency practitioner must administer liquidation. Therefore, you’ll need qualified professional insolvency support to protect your creditors, business, and you. Once appointed, the liquidator confirms the company’s financial status. Then writes to the business’s creditors, confirming their appointment and what will happen next.

All business assets are then valued by an independent registered valuer and sold for the benefit of creditors, and the funds are distributed. Sadly, all staff, including the former company directors, are forced into redundancy. Then, the liquidator applies to Companies House to remove the company from the registrar, as it no longer exists as a legal entity.

For further reading on meeting an Insolvency Practitioner, please read ‘First meeting with an insolvency practitioner ‘and Duties of an Insolvency Practitioner‘.

Can you claim redundancy as a former director?

If your company had employed you and an appointed director, you might claim redundancy pay and other entitlements. The liquidator will notify you whether you are eligible. The criteria require:

  • You had a contract of employment, whether written, oral, or implied;
  • Your company employed you for a continuous two-year period;
  • Worked at least 16 hours a week in a role more than a consultant;
  • Paid through the PAYE scheme.

The average payout for a company director who qualifies for redundancy is approximately £9,000, claiming it is worth the effort. Your claim saves you money in funding the liquidation during tough times for your business and personally.

If you require further help regarding company insolvency and entering liquidation during COVID-19, our experienced team at HBG Advisory can provide robust support.

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