As a company director, if you find your company is struggling with unmanageable amounts of debt and keeping it open isn’t a feasible option, you may be better off if you liquidate your company. While it may sound like the last thing you’d want to do, putting an insolvent company into a voluntary liquidation could be the best option. Doing so can draw a line under its debts and help limit any longer-lasting damage.
Whatever you do, if you become aware your company is insolvent, the worst thing you can do is nothing. Burying your head in the sand will only make the situation worse. Approaching an insolvency practitioner is nothing to be ashamed of, and taking decisive action as soon as you’re aware of the problem will prevent issues from escalating later.
Depending on the company’s circumstances, liquidation can be a lengthy and complicated process. Several things need to happen before the Liquidator can begin their work, and you should consider the following factors before deciding you want to liquidate your company.
Can the company afford to liquidate?
Before you decide to liquidate your company, you may be concerned about the potential costs involved in the process.
While a liquidation might seem like a costly process, the main cost will be the fee for the initial Statement of Affairs. You can get a quote for liquidation by speaking to a licensed insolvency practitioner, who will assess your circumstances before deciding whether it is the best solution for your company and whether the costs involved are affordable.
Depending on the company’s circumstances, you might be better off exploring an alternative solution to liquidation and may even be able to trade on while repaying the debts through a formal repayment arrangement like a Company Voluntary Arrangement (CVA). If the company’s debts are unmanageable and trading on isn’t an option, liquidation may be the best way to draw a line under the debts.
In the lead up to a liquidation, directors should safeguard company assets that could be sold to help cover the costs of liquidation and generate funds for a return to creditors. Once appointed, the Liquidator will handle the sale of company assets.
If directors choose to value company assets before liquidation, they should be valued by an RICS chartered surveyor to ensure a proper, professional valuation is obtained.
Since limited companies are separate legal entities from their directors, the cost of the liquidation falls on the company’s shoulders unless, as a director, you’ve signed personal guarantees or committed wrongful or fraudulent trading.
Will a liquidator investigate the director’s conduct?
During liquidation, your conduct as director will be investigated to ensure there is no evidence of wrongful or fraudulent trading or any other action that would indicate the director(s) haven’t acted in the company’s best interest. If such evidence is found, the director could face further investigation. In the worst-case scenario, directors found guilty of wrongful trading could face bans of up to 15 years and even personal liability for the company’s debts.
As long as you are not disqualified as a director as a result of misconduct, you’re free to start a new limited company.
What will happen to the company’s assets?
What happens to the company’s assets in liquidation can vary. Sometimes, directors might want to repurchase those assets at market value in the hopes of restarting the business in a new limited company through a pre-pack arrangement. This process may be possible depending on the company’s circumstances, but strict guidelines need adhering to, and you should seek professional insolvency advice before settling on this option. While directors can sell company assets before liquidation, if the Liquidator believes they’ve been sold or transferred at an undervalue that would put the creditors at a disadvantage, they can apply to overturn or reverse the transaction.
To summarise
Finding out your company cannot pay its liabilities is a situation few directors want to find themselves in. You might assume you have to liquidate your company, though depending on the company’s circumstances, other options, such as repaying through a formal repayment arrangement or restructuring through a formal administration process, could be more suitable.
Whatever your company’s circumstances, it’s essential you don’t bury your head in the sand. Address the issue and take decisive action to limit the damage.
However, if you’re past the point where recovery and restructuring solutions would be of any benefit, closing via liquidation is possibly your only option.
Before appointing a licensed insolvency practitioner to liquidate the company, directors can have the company’s assets valued by an RICS chartered surveyor, which can then be sold during the liquidation.
As the company and director are separate legal entities, the liquidation’s costs shouldn’t affect the director’s personal finances.