How can I liquidate my insolvent company?
Liquidation is used to close a company for good. It is not a complicated process. However the correct steps need to be taken to protect the interests of the company directors.
In order to start the liquidation process, the company directors will need to employ an insolvency practitioner. If the company is insolvent the first job of the insolvency practitioner will be to hold a creditors meeting where a liquidator is appointed.
Normally the creditors will appoint the liquidator suggested by the company directors. However, if the company's bank is a major creditor, they may wish to appoint their own liquidator from an approved panel.
The minimum cost that the insolvency practitioner is likely to charge for the liquidation process including the necessary advertising costs is around £5000. If the company is insolvent, this fee will normally have to be paid by the directors.
What about just leaving the company for my creditors to wind up?
Given the cost of liquidation, a common question is whether it would not be better just to leave the company and wait for one of the creditors to take action to wind it up.
The major issue with this is that the directors will have no control over the appointment of the liquidator.
Once appointed, over and above the sale of the company's assets the liquidator is required to carry out an investigation of the conduct of the company directors and report this to the insolvency service.
If a hostile creditor is left to appoint the liquidator, it is likely that they believe that the directors have been involved in trading the company when it was insolvent. They will want the liquidator to confirm this and accuse the directors of wrongful trading.
If a director is found to have knowledgeably allowed a company to trade while insolvent, they could be made liable for the company's debts and stopped from acting in the capacity of a director of other firms in the future.
If the directors have recommended the liquidators appointment, this is far less likely to happen.
Alternatives to liquidation
Before making the decision to close an insolvent company, the directors should consider whether there may be a better alternative which will allow the business to continue to trade profitably.
The two solutions most commonly considered are a company voluntary arrangement (CVA) and pre pack administration. Both of these solutions will considerably reduce or write off the company's debts altogether.
Such action together with the possibility of refocusing the company's strategy often allows the business to remain open saving jobs and protecting value for the shareholders.
If your company is insolvent, before making the decision to stop trading, it is first important to consider all of the rescue options available. However, if closure is the only way forward, then appointing the right liquidator to protect the interests of the directors is extremely important to reduce their potential liability for the company's debts.
If your business is in financial difficulty why not talk to us about alternative solutions, more info at http://coopermatthews.com/business-recovery-services-advice.html
If you believe liquidation is the way forward then http://coopermatthews.com/company-liquidation.html
Derek Cooper is Managing Director of Cooper Matthews Limited and a member of the Turnaround Management Association UK.
Cooper Matthews specialise in Business Recovery Services Advice providing straight forward insolvency advice for businesses in difficulty and business owners with personal financial problems. They have significant experience in working with small to medium sized businesses, working with Directors, Sole Traders and Self Employed.
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