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Advantages Of Liquidating An Insolvent Company  

Advantages of liquidating an insolvent company. Written by John A Waller, Director. Reviewed June 5th,2022.

Liquidating an insolvent company with a CVL is not the preferred route to close a limited company. However, if the company operates a business that can be restructured, directors should consider an Company Administration or a Company Voluntary Arrangement. For further help, please contact HBG Advisory on the contact details detailed below.

Benefits of insolvent liquidation

  • Creditors’ Voluntary Liquidation (CVL)

A CVL remains one of the two liquidations used to close a company in England and Wales. A CVL begins as soon as the directors of the company receive the approval of the shareholders to liquidate the company voluntarily, without court pressure. Typically, it can no longer pay its creditors as an insolvent company if they are due.

However, company directors should understand the implications of a Creditor’s Voluntary Liquiation 

So once the liquidation has been approved, the company benefits from: –

  • No More Debts after Liquidation;
    • Pressure from creditors stops;
    • Remaining debt after distribution to creditors remains written off;
    • Note those, debts personally guaranteed remain payable by guarantor;
  •  Legal action ceases;
    • Any legal action dropped once the company liquidated;
  • Low cost process;
  • Redundancy claims may commence;
    • Employees can claim unpaid salary, holiday pay, notice pay, and redundancy from the National Insurance Fund;
  • Cancellation of leases, any lease or hire purchase agreements will be terminated once you liquidate your company;
  • HMRC cease threatening letters;
  • All county court judgments or pressure on the recovery of claims stop;
  • Once the Liquidation is complete, directors will therefore no longer need to file annual financial statements, VAT returns or tax returns;
  • Former Directors of the liquidated company can find another job or set up another company;
  • The creditors of your company may then claim VAT back on the debt owed.

Advantages of liquidating an insolvent company for Company Directors

For company directors, a creditors’ voluntary liquidation is often chosen to avoid winding-up orders and compulsory liquidation. The voluntary liquidation process enables company directors to have greater control over who to appoint. Importantly, professional guidance allows directors to consider options before considering closure through a creditors voluntary liquidation. Additionally, directors may protect themselves from any wrongful action claims, such as trading while insolvent. Directors also benefit from staying clear of aggressive creditors winding up petitions issued, and the risk of having your company bank frozen if the winding up order is published in the London Gazette.

Suppose your company has no debts and is solvent. The member’s voluntary liquidation provides a tax benefit.

However, other options exist for your company to review, such as

Advantages of liquidating an insolvent company for Creditors

A limited company’s insolvency transfers the legal duty of directors from shareholders’ interests to creditors of the business. Once appointed, the liquidator legally must realise the optimum amount of money from all the company’s assets. Once completed, the money realised is used to pay creditors of the company once the cost of the liquidation process is paid.

Appointing a licensed insolvency practitioner as a liquidator means that those creditors chasing money are informed of the company’s situation. Additionally, the liquidator also advertises that the appointment of a liquidator has taken place, together with who they are and their contact details in the London Gazette.

Advantages of Compulsory Liquidation

When a company’s creditor applies to the court to liquidate the company for unpaid debts. If a judge approves the petition, the company is passed over to the official receiver for processing.

So the advantages of compulsory liquidation are:

  • Allows uncontrollable debt to be dissolved;
  • de escalates creditor pressure;
  • No upfront cost to directors.

Advantages of liquidating an insolvent company with HBG Advisory

When considering the option of liquidation, company directors should fully understand the impact of such measures.

For free insolvency advice for limited companies, and advice when you can’t pay back your bounce back loan. Please contact the team at HBG Advisory asking for John A Waller DIrector on 0330 056 3120.

Bounce Back Loan advice for Company Directors

Directors should seek professional advice if they have Bounce Back Loan worries regarding repayments. The UK government introduced the COVID-19 support scheme to support businesses through the pandemic. owever, repaying the loans has been difficult. So ensure you seek advice sooner than later.
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