Can a company in liquidation still trade?​

For a company that has fallen on hard times, liquidation may seem like the obvious solution to secure a clean break for all parties.

However, liquidation is a decisive step towards ending a company, and taking it may have unforeseen and undesired consequences.

This article explores one of the ways a company is affected when it enters liquidation proceedings, i.e. its ability to trade.

We answer the question ‘Can a company trade while in liquidation?’, the effects of these proceedings and other alternatives to consider before making this pivotal decision.

Can a company still trade while in liquidation?

The simple answer is no.

A company undergoing liquidation is obligated to cease trading, as the purpose of liquidation is to end the company.

Requiring that a company stop trading during liquidation actually serves to benefit both the company and its creditors.

This requirement reduces the risk of the company acquiring more debt that it can’t afford to repay later, thus unfairly disadvantaging any creditors.

Instead, the focus is shifted towards repaying its current creditors, selling assets and ending the company altogether.

What happens if a company’s directors continue trading during liquidation?

In this scenario, the company would be committing an offense known as wrongful trading under s.214 of the Insolvency Act.

Directors of a company that continues trading while in liquidation can be held criminally liable, as they exercise control over the company, except when it is under liquidation.

Especially if they know that the response to the question ‘Can a company still trade if in liquidation?’ is negative.

This decision to continue trading may also affect their eligibility to be a director at another company for several years. Therefore, compliance with the liquidator and the law is crucial.

What are the alternatives to liquidation?

If your company is facing financial problems but there’s an interest to continue trading, or there are prospects for recovery, it’s worth considering other options.

For example, a company voluntary arrangement allows the company to trade, albeit under different conditions, and restructures the company’s operations to help them pay off their debts.

Similarly, company administration continues the company’s operations under the control of a liquidator, but helps the company achieve long-term profitability.

Hence, there are alternative options available if it’s important to continue trading and there’s interest in making the company profitable.

How Irwin Insolvency can help

The best way to identify your company’s options is to consult an experienced insolvency practitioner, such as Irwin Insolvency.

For more than two decades, Irwin Insolvency has been helping companies recover from debt whilst terminating their operations or continuing on the path back to success.

For guidance on the best action plan, contact us by telephone at 0800 254 5122 or by email at mail@irwinuk.net