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What Happens After Liquidation

If your company is in difficulties, it’s tempting to do everything in your power to put off the act of liquidation. That’s understandable. You’ve invested so much time and money into building your company that you don’t want to become insolvent due to short-term trading difficulties beyond your control. You want to try and tough it out; after all, something could turn up.

Unfortunately, this is often the wrong course of action. Indeed, it can leave you in a more difficult situation. When your company clearly has no future, it’s important to act quickly and promptly. So what happens next?

Voluntary or Involuntary Liquidation?

There are two forms of liquidation: voluntary and involuntary. The company directors instigate voluntary liquidation, whilst involuntary is usually initiated by one of the creditors.

With involuntary, or compulsory, liquidation a third party lodges a petition with the courts. This is usually one of your creditors, but it could also be a shareholder, the official receiver, or the Secretary of State.

Voluntary liquidation is the quickest and easiest way to deal with a company that’s insolvent and has no future. It’s undertaken by the company directors, who then have access to an insolvency practitioner. They may look at other options beyond liquidation, but if it’s deemed to be the best option, they would approach a liquidator to wind up the company.

After that, the company assets are sold off and the proceeds used to pay off as many of the creditors as possible. All the property and holdings will be disposed of, then the company will be dissolved. However, whether you opt for voluntary or involuntary liquidation, the end result is the same. Once liquidation has begun, any litigation involving the company ceases. No further legal action can be taken by creditors.

A Limited Liability Company

If your company is limited liability, the directors will be exposed to very little risk unless they’ve acted improperly. Indeed, if the director has been on the payroll, they can actually claim a statutory redundancy payment.

However, the definition of ‘improper’ in this situation is complicated. Directors can be at risk if they’ve failed to keep books and records correctly, failed to act promptly and reasonably, or taken credit knowing it cannot be repaid. Much of this would be regarded as wrongful trading and they may face personal liability for company debts.

If the company is wound up by creditors, the official receiver will investigate the activities of each director over the previous few years and file a conduct report. If the directors are found wanting, then the protection of directors under limited liability can be lifted and they will become personally liable for the debts of the company. The result could be bankruptcy and disqualification as a company director.

Find Out More

Here at Irwin Insolvency, we specialise in rescue and turnaround for businesses. We offer clear, impartial advice on all aspects of liquidation. If your business is experiencing difficulties, get in touch with one of our friendly, empathetic team today. Remember, act quickly and promptly to avoid personal liability.

What is an insolvency proceeding?

An insolvency proceeding is a process taken when an organisation or individual are no longer able to meet their financial obligations and pay their creditors when debts are due. Insolvency proceedings usually take place after less formal arrangements have failed and can be the result of bad financial management, changing market trends, heightened expenses and reduced income.

Compulsory and voluntary liquidations

Insolvency proceedings can begin if you owe more than £750 and are not disputing the debt. This process is known as compulsory liquidation and will normally start when a statutory demand is issued against you. A winding-up petition will then follow. You may decide voluntary liquidation is right for you if you expect compulsory liquidation is about to take place. If you’re a company director and you think you cannot rectify the situation, you may decide to begin liquidation proceedings yourself, backed by shareholders.

Considering a CVL?

You may decide to enter into a Creditors’ Voluntary Liquidation or CVL. A CVL offers benefits to directors as well as company directors. If you receive a statutory demand, this may indicate that compulsory liquidation may be about to occur. If you fail to repay the amount within this time period, the debt will become official and the creditor or creditors will be able to launch a winding-up petition. If the order is granted by the courts, this will usually mean your company has to close.

Are you eligible for a CVL?

Entering into a CVL can help you avoid being accused of unfit conduct and wrongful trading. In a CVL, the interests of creditors are prioritised, and they stand a greater chance of receiving a higher return. If you wish to enter a CVL, your liabilities must be larger than your assets, and you must have no hope of stabilising the financial position of your company. At least 75% of your shareholders by share value need to agree to wind-up the business. A licenced IP or insolvency practitioner will be appointed so your assets can be liquidated and the business closed down.

Personal insolvencies

At Irwin and Company, we can also help you if you are facing personal insolvency and the likelihood of bankruptcy is growing. We can advise you on what the best route to take in your situation is, and come to your assistance if you’re interested in entering into an Individual Voluntary Agreement as a less extreme alternative to bankruptcy.

Why we can help

We have been helping businesses and individuals with money matters and insolvency for many years and are renowned for the quality of the support and advice we offer. We are well known for our compassionate, understanding and proactive approach and always aim to find a solution that meets the needs of debtors and their creditors. We aim to meet and even beat your expectations and do everything in our power to ensure the worst-case scenario doesn’t become a reality. If you are experiencing financial difficulties and wish to learn more about your options, use our online contact form or give us a call on 0800 009 3173.