Company Bankruptcy (Liquidation)
Bankruptcy is the term used to describe the process that an individual person can go through if they have no possibility of repaying the money that they owe.
Often people also use the word bankruptcy to describe the process which a company goes through if it is insolvent and needs to be closed because it cannot pay its debts. Strictly speaking, to describe this process as company bankruptcy is incorrect. If a company is to be closed or wound up, the correct term for this process is company liquidation.
There are different forms of the liquidation process depending on whether the company is to be closed voluntarily or forced to close by one or more of its creditors.
Compulsory Company Bankruptcy (Compulsory liquidation)
The Compulsory Liquidation of a company is when the company is ordered by a court to be wound up.
This is the closest thing to bankruptcy for a limited company. Compulsory Liquidation is used where one or more of a company's creditors feel the need to force the company to be closed and cease trading. The creditor will present a petition to wind up the company at the court (a Winding Up Petition). The company may then be ordered by either the High Court or a local County Court (depending on jurisdiction) to be liquidated or wound up.
Voluntary Company Bankruptcy (Voluntary Liquidation)
Voluntary Liquidation is the process by which the directors of a company, with the assistance of a licensed insolvency practitioner, put the company into liquidation, or wind it up.
This is to be contrasted with a Compulsory Liquidation, which is a method by which a creditor issues a petition through the Court to force the company to be wound up.
If you do not want to continue running your business or you think it is in difficulty and cannot continue to trade, then you need to get good information about your possible options. One area which you will need to consider is company liquidation. The purpose of this article is to explain in simple language what company liquidation is and when its use might be appropriate.
If you have decided to close your company then you will need to put the business into liquidation. We describe the process you will need to follow.
In the midst of an economic downturn, many companies find themselves at risk of failure because they do not have enough cash to maintain their day to day business activities. High Street banking institutions are currently extremely reluctant to lend because of the huge bad debt risks. There are other funding options which should be considered collectively known as business re-financing.
If your company is no longer financially viable in its current form, you may be looking at closing (or liquidating) the business. However, if you believe that the business idea remains a good one, you should look at a Pre Pack Liquidation or Phoenix.
Before deciding to liquidate your company, it is worth considering whether there may be a possibility of saving the business. One option you can consider is a Company Voluntary Arrangement (CVA).
If a company is struggling and unable to continue trading the directors may decide to close the business by a creditors voluntary liquidation. When the liquidator looks to try and sell the assets of the company for the best price there is nothing to stop a director of the original business setting up a new company and making a bid for any or all of the assets which can then be used in a new enterprise.