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Why Do Limited Companies Enter Liquidation

Why do limited companies enter liquidation? Usually due to the company no longer able to pay its creditors when due?

Failing to pay your company’s creditors as and when they fall due is a clear indicator of your company’s insolvency.

Company directors remain required to cease trading immediately, while ensuring no further credit is taken from creditors, when knowing the companies’ inability to pay their debts.

Business liabilities exceed total assets

When your company’s liabilities exceed its assets, then it may be considered insolvent. 

The directors would like to see someone else deal with the company’s creditors and their claims

A liquidator’s appointment to close a company shifts the burden from directors while avoiding further claims on preference claims.

The business is making losses, and you don’t think you can reverse the situation

Doubt over the viability of the company in the future may give rise to a company’s liquidation. Ongoing losses eat into working capital, and no plan offers a turnaround to profit that causes closure.

My Bounce Back Loan Top Up was declined

Many companies faced refusal when applying for a top up of their first bounce back loan. For further detailed reading, please view ‘bounce back loan top up declined’.

My company has defaulted, paying back its bounce back loan

You can liquidate your company despite having a bounce back loan. So what is liquidation and bounce back loan impact?

Directors find it challenging, coping with the stress and pressure of trading

The current Coronavirus COVI19 pandemic is inescapably tricky for company directors fighting against insolvency and facing wrongful trading and preference payments claims. Committing to a company in liquidation may help them remove any exposure to mental health issues.

Company Directors are concerned that trade is declining and you are liable for unlawful trading if you continue.

A company that faces declining sales due to long-term changes in its market, or that must say it is switching from its product to a new product. This can induce directors to call it a day as long as the situation is stable, rather than drifting into a severe condition where creditors are needlessly losing out. 

Workers entitled to severance pay, unpaid salary, leave, and redundancy benefits can turn to the State Compensation Service. 

Former company directors can usually claim subject to conditions met.


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