Why Should You Formally Liquidate Your Company

A debt solution may not be suitable in all circumstances. Fees may apply and will affect your credit rating

Article by Bev Budsworth MD of The Business Debt Advisor


So why does it makes sense to liquidate?

 Claiming monies from the Redundancy Fund

 I was recently instructed to provide advice to a company who had used most of the cash at bank to pay employees wages and were now left with very little money to fund the liquidation.

Employees were paid wages but not paid any notice or accrued holiday pay or redundancy. The director did not know that employees can claim these monies from The Redundancy Fund (up to certain limits). This included the directors’ who were all salaried. But these claims can only be made once the company is formally liquidated. Going down the striking off route would have left the employees and directors high and dry.

Selling the business on

The directors had personally funded or provided PG’s in relation to start up capital. They were about to close the doors on the business and get no consideration back into the company to help settle some of these claims.

It is not always possible to sell a business on but putting together a Business for Sale pack can be done quickly and as can e-shots to potentially interested parties. I am always pleasantly surprised at what we have in the past been able to achieve in terms of sales of business and the funds that have flowed back into the liquidation to cover the costs and claims of the company.  We achieved a fantastic outcome for an online appliance retailer. Read the case study here.

Buying the business back

The directors might want to buy the business back and set up a new business.  This needs to be done properly. Setting up a company with a similar name and acting as a director of that business could be very costly. The directors could find they become personally liable for the debts of the newco as they have contravened a nasty section in the Insolvency Act which makes it a criminal offence to be involved in the formation, promotion or management of a limited company with a similar name or trading name to the previous company. This only applies if old co is liquidated but creditors could feasibly take steps to wind up oldco, leaving the directors with a very nasty problem.

Act in the best interests of your creditors

It is tough being a creditor and losing money when a company goes bump. It is even tougher when directors do not take steps to wind up the company. Creditors spend hours chasing to try and find out what has happened. This delays them claiming VAT bad debt relief, they cannot claim in the liquidation and receive a dividend should there be any chance of a return. Also creditors don’t get a say on who is liquidator and what their charges will be. The list goes on.

Directors’ have a duty to act in the best interests of the company. If the company is insolvent, that is it has debts that cannot be settled, steps should be taken to wind up the company using the Creditors Voluntary Liquidation procedure.  There are other rescue procedures if the company is still viable.

Instructing an Insolvency Practitioner to liquidate your company does come at a cost. Our fees generally come out of the assets of the company. Occasionally directors themselves fund the costs but often this is where they are buying the assets back and the consideration for the assets funds the liquidation costs or the directors owe the company money on their directors’ loan account.

 Taking steps to wind up your company does need careful consideration. Call our team on 0333999689 or email us at advice@thebusinessdebtadvisor.co.uk

The Business Debt Advisor is a trading division of The Debt Advisor Ltd which is authorised and regulated by The Financial Conduct Authority number 659920. Beverley Budsworth is the MD and is also an Insolvency Practitioner regulated by The Insolvency Practitioners Association.

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