Case Studies for Liquidation

If the position of the business is so bad that there is really nothing to salvage, there may be little alternative but to liquidate the company and realize any assets to provide at least some return to the creditors.

This situation may occur if the business is beyond rescue, no one is interested in buying the business, the prime assets have been eroded or have disappeared (for example key staff have left), or because creditors will not approve a voluntary arrangement.

Very often a company may be saved from liquidation if the directors seek help in sufficient time to allow the company to be saved. Waiting until it is too late and the company is hopelessly insolvent will often mean that there are very few options left.

Liquidation is, with very few exceptions, the end of the road for a company. Its assets will be sold off and the proceeds distributed to the creditors in a defined order of priority. The company will then be removed from the companies register.

The case studies below to give a fuller idea of how and when liquidation would be used.

Franchise Company - Car Window Tinting

The Director of the business invested much of his savings to buy an expensive franchise. He was worried that it was not performing well and he was investing in more and more capital. The business had purchased equipment on

HP and had numerous additional debts. However, these could not be satisfied by day to day trading. The director decided that the business was fundamentally flawed as it was based in the wrong location.

The decision was taken to voluntarily liquidate the company. The business ceased to trade. There were little or no business assets. However, there were various debtors due to be collected. Given all payments to creditors were stopped, this cash inflow was sufficient to pay for the cost of the voluntary liquidation and return a minor sum to the creditors.

The director decided to find employment and now works in the same sector but as a manufacturing director for a car tinting company in West London. In this way, he has avoided personal bankruptcy, kept his home and his marriage/family.

Multiple Companies Group

This group of 8 estate agencies had been going through financial difficulty. One of the 8 had already been liquidated by a creditor (compulsory liquidation). The owners of the business thought that a further 6 of the 8 agencies were insolvent and one remained solvent.

On closer inspection of the businesses, it became clear that 5 of the companies needed to be closed and liquidated. Two were in Scotland the rest in Wales. However, the other two were rescued by Company Voluntary Arrangements (CVAs).

The directors who had had a tough few months are now focused on running their viable companies. They have had their conduct reviewed by the liquidators and no further action was taken against them. This is normal result of liquidation investigation as wrongful trading actions against directors are very rare.