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When is Voluntary Liquidation suitable for your business?

Published on:April 9, 2019Author:alex

Article by Laura Walshe of The Business Debt Advisor

There are many great reasons to start a business, but taking on the challenge of running a successful enterprise is not for the faint-hearted.

At the end of 2018, the number of companies listed on the Companies House register was 3,879,844 (excluding those dissolved or in liquidation).

This represented an increase of 36,330 compared to the previous quarter ending September 2018.

Whether your business is relatively new, or well established, it is always important to keep tight control and consider what could go wrong, and how to respond to challenges.

If your business finds itself in financial difficulty, managing business debt can be extremely stressful and time consuming.

At The Business Debt Advisor we understand this. We aim to take fear out of business failure, and provide you with the right advice.

What is Voluntary Liquidation?

Voluntary liquidation is a procedure which can be instigated by company directors when they have formed the opinion that the company cannot pay its debts, and should cease trading.

It is the most commonly used form of liquidation in the UK.

When a company enters into liquidation, its assets will be sold in order to repay its liabilities as far as possible.

When is Voluntary Liquidation a suitable option?

Voluntary liquidation is likely to be the most suitable option if your company has debts that it simply cannot afford to repay, and the business itself cannot be saved.

Many companies suffer from short term cash flow pressures at one time or another. This situation, in itself, does not mean that voluntary liquidation would be the most appropriate solution and careful consideration must be given to all of the relevant circumstances.

What are the advantages and disadvantages of liquidation?

There advantages and disadvantages of voluntary liquidation.

Their relevance will depend entirely upon the individual circumstances of your business.

Advantages

1. Relatively Low Cost

The professional fees and costs associated with voluntary liquidation are usually met from the sale of company assets, and can be significantly lower than the costs associated with other insolvency processes.

Professional fees associated with the liquidation process can be as little as £3,000 + VAT and expenses but this is dependent on the complexity of matters, and the amount of work which is likely to be involved.

2. Debts Written-Off

When a company is in liquidation, no further action can be taken by company creditors to recover debts outstanding.

Once the company’s assets are sold, the liquidator will use the surplus proceeds to pay the creditors in order of their statutory priority, as far as possible, but then any unpaid debt is written off.

3. Selling the Business or Starting Again

Directors might want to buy the business back and set up again. In most cases there is no reason why this cannot be achieved, but it needs to be done properly, with particular care being paid to the re-use of a company name, or trading style.

Alternatively, it is possible to sell the business on to an independent third party.

Our team has a track record of achieving sales which have generated significant funds for the benefit of the liquidation, and a case study can be found here.

Disadvantages

1. Closure

When a company enters into liquidation it is no longer be able to operate.

The process will have a substantial impact on any market presence (goodwill) which might have been established through a long period of hard work.

2. Review of Directors’ Conduct

In view of the company’s financial position, the liquidator will have an obligation to report to The Insolvency Service on the conduct of all individuals who have acted as a director in the previous three years.

If a director’s conduct falls short of accepted standards, this could result in a ban on that director acting as a director for a maximum period of 15 years.

3. Repayment of Directors Loans and Personal Guarantees

Unfortunately, if any director owes money to the company, the liquidator will be obliged to request that this amount is repaid.

If any director has given a personal guarantee they may become personally responsible for the repayment of the balance which the company itself is unable to pay.

Liquidation – Made Simple

Following the introduction of The Insolvency Rules (England and Wales) 2016 it is now quicker and easier to wind up private limited companies, where liquidation is the most suitable option.

New decision processes allow for virtual meetings and approval can even be obtained by deemed consent (a simple ‘yes’ or ‘no’ to certain resolutions).  Physical meeting cannot be convened unless this is request by certain majorities.

Careful consideration must be given to all options available to an insolvent company. For more advice, fill out our Contact Formand we will be in touch.

Alternatively, call our FREE ADVICE LINE on 0800 781 0990.

Our team has extensive experience and can arrange an initial consultation at no cost, usually on the same day.