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Limited Company Going Into Liquidation?

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Limited Company Going Into Liquidation?

Considering Liquidating a Company?

Since March 2020, many UK businesses have been affected by the coronavirus Covid-19 pandemic. 

Considering the liquidation of a limited company is dependent on:-

Is your company going into liquidation? Here is what you need to know.

If your limited company is facing liquidation, company directors should be aware of the following:- 

  1. A limited company may voluntary liquidate using a Creditors’ Voluntary Liquidation (CVL).
  2. However, it may liquidate involuntarily through compulsory liquidation. 
  3. During the liquidation process, the appointed liquidator realises the assets of the insolvent business to repay company creditors.

As a company director, it is essential to understand the advantages of company liquidation.

Although actions will vary depending on the type of liquidation, an insolvency practitioner will monitor both processes or the official receiver. They will involve the sale of all the business’s property, assets, and holdings, followed by the complete dissolution and closure of the company. However, no matter what liquidation type is adopted, the result is the same for the company’s creditors.

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What happens throughout the process of a Compulsory Liquidation?

If an individual or business, often a disgruntled creditor, submits a winding-up petition (WUP) with a court, if approved, then the limited company compulsorily liquidated. Such measures prompted when the creditor owed money believes the debtor company has assets it wishes to protect. In which case such action leverages the creditor to pay, or that they may be paid from the liquidation of the company’s assets. However, the creditor may have had enough and want to stop the company from trading further. 

To read further on Compulsory Liquidation & Winding Up petition.

However, company shareholders or interested parties can issue a winding-up petition, provided it is valid and not an abuse of the insolvency process. 

The directors of an insolvent company can also file a legal grievance to have the company liquidated through voluntary liquidation.

Limited Company Going Into Liquidation? – Compulsory Liquidation.

However, if more than one of the following applies, your company remains liquidated by compulsory liquidation:

  • Companies liabilities greater than the value of their assets; 
  • HMRC Arrears; 
  • Cashflow is insufficient to pay the debts of the company as and when they fall due; 
  • Members of the company less than prescribed statutory minimum; 
  • Declined to re-register as a private company;
  • Not traded within one year of the incorporation date.

Once a limited company is in compulsory liquidation.

  • The official receiver commences realising assets of the company’s assets begins, 
  • Any legal action against the company ceases.
  • The company is struck by the registrar of companies and ceases to exist.

Why consider voluntary liquidation of your limited company?

When a limited trading company sustains debt, it can either not repay or is more significant than its assets and is not viable moving forward. Then liquidation is the only option available.

However, before rushing to consider a liquidation, other options exist if your company remains viable, but suffers a cash flow issue.

The first consideration is a company voluntary arrangement (CVA). A CVA is part of the restructuring process of insolvency and does not involve the formal closure of the company. Moreover, suppose urgent protection is required to enable a company to sell rather than face liquidation? Then a company administration may be best, though expensive.

Liquidation of any type closes a limited company and involves its removal from the registrar at companies house for those companies registered in England and Wales.

Knowing that your limited company is insolvent requires company directors to take immediate action to protect the interests of the company’s creditors. In preference to the company’s shareholders, trading while insolvent and worsening the financial status of creditors could lead to directors being held liable for the debts of their limited company. Therefore, directors must contact licensed insolvency practitioners, as found in the team at HBG Advisory. Do not enter into further legal agreements or obtain additional credit in the name of the insolvent company. Lingering along  only further causes problems. 

What happens during a voluntary liquidation?

The voluntary liquidation is considered a less traumatic insolvency process due to directors having initial control and timing to appoint a liquidator of choice.

Often when a director requires help with a failing company, they seek initial advice from their accountant, who usually passes them over to a trusted Insolvency Practitioner to carry on with any process required. As company directors have access to the assistance and guidance of an insolvency practitioner who handle the entire process, the director’s involvement ceases once the insolvency process begins. 

As long as the necessary reasoning shows that voluntary liquidation provides the best outcome for the company’s creditors, then approaching a liquidator to place the company into is surprisingly straightforward. 

After discussing your situation with an insolvency practitioner, you may find that there are more suitable solutions than liquidation, allowing a company to sustain trading or maximise the return to creditors. Usually, this could involve negotiating with creditors and entering into a Company Voluntary Arrangement (CVA) to lower monthly outgoings. If considering purchasing the assets of the business, then a pre-pack administration may be best. 

Company Directors Liability

Although directors liabilities are separate from the limited company, directors are generally not held responsible for the debts of a limited company. However, if the court finds you guilty of wrongful trading, you may be asked to assume liability for the money the company owes. However, a risk to directors is if you trade a limited company while knowingly insolvent and failing your duties as a company director. So engaging a licensed insolvency practitioner demonstrates your responsibility to put the interests of your company’s creditors above yours and your company’s shareholders. Notably, hiring an experienced insolvency practitioner ensures you as a company director can receive:

  • Voluntary Advice.
  • Directors choose your preferred liquidator (subject to creditor approval).
  • As a company director, you demonstrate your director’s duties & responsibilities to protect creditor interest.
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