Can I liquidate my company and start again?
For many business owners, the financial pressures of the last few years still impact their business strategies. For some, they may even be getting worse due to rising costs of living, materials and other services. Due to this, many business owners are likely wondering, can I liquidate my company and start again? We’ll be telling you all you need to know.
For most directors, company closure due to financial issues is generally a last resort. But for companies who see no hope of recovery or bouncing back, it may be the best option.
Can I be a director of a company after liquidation?
The short answer is yes, but there are rules that must be followed to ensure that the process is completed correctly and reduces the chances of nasty surprises down the line. Failure to follow these rules will result in a breach of the Insolvency Act section 216, which can have some serious consequences for a director.
Directors that have been found to commit misconduct may face disqualification for a number of years, personal liability for some or all of the company debts and in some cases, even prison!
What is a pre-pack liquidation?
When a business becomes insolvent, it is unable to pay its debts on time, and its liabilities are worth more than its assets. Or, there may be pending legal actions such as CCJs or statutory demands against it.
A pre-pack arrangement can be used by insolvent directors to rescue the company. This can only be completed if there is a genuine belief that the company can recover.
You should seek professional advice to ensure that a pre-pack liquidation is the right step for your business. If it is deemed suitable, you must appoint an independent asset valuer. They will ensure that all assets are valued fairly.
When you appoint a licensed insolvency practitioner, you will need to provide evidence that your business assets were sold at a fair price. Selling and purchasing business assets at a discounted price will be considered director misconduct. If you are found to have done this, the sales may be reversed, and you will lose limited liability status. This means you could be held liable for company debts.
What happens in a pre-pack liquidation?
- HMRC arrears are wiped out (tax debts)
- Bounce-back loans are written off
- CBILs loans up to £250,000 will be written off with no personal liability to the director
- Other unsecured outstanding debts will be written off
Before entering a pre-pack liquidation process, you must take time to research and gain trustworthy advice to ensure that it is the most appropriate option for you and your company.
The main benefit of a pre-pack liquidation is that you are given a second chance to make changes so that you do not end up in the same position. You must think long and hard about the viable changes that you can make to prevent the same issues from occurring.
What is a phoenix company?
A phoenix company is an informal term for a new company that has been formed from an insolvent company. The name phoenix company comes from it being reborn from the ashes of its predecessor.
The phoenix company will be free from the old company’s debts, providing the company with a clean slate to carry on business. A phoenix company is created through either a pre-pack administration or a pre-pack liquidation.
Advantages of a phoenix company
- Continue trading without historical debts
- Protect employees
- Potential to use the same company name and continue with marketing and brand image, subject to following some very strict compliance.
- Directors get to refocus on business development
Closing down an insolvent company
If your business has ceased trading due to insolvency (you’re unable to pay company debts or any bills due, or your liabilities outweigh your assets), you can close it down through a Creditors’ Voluntary Liquidation (CVL). This procedure allows the directors to retain some control over the liquidation process. They can choose their own liquidator, and a process will be identified whereby the company assets will be sold to make specified repayments to creditors.
For a company that’s burdened with debt, with no reasonable prospect of recovery or the funds to pay for a Creditors’ Voluntary Liquidation, there may be no other feasible option other than to allow the company to be wound up by the official receiver. This process is known as compulsory liquidation. We strongly advise against waiting for a compulsory liquidation to happen, as you could breach your director’s duties and the consequences for the director are likely to be more severe.
Can I use the same name as my old business for my new business?
Again, there are regulations that you must follow to be able to use the same company names with a pre-pack liquidation, and it may not always be possible. In some instances, you may be able to purchase the name and the trading name of the old company. This will likely be done through an application to the courts. In other cases, you may not be allowed to use the same or similar name for the new company.
Closing an insolvent company and starting a new company
Before you make the decision to close your limited company and start a new company using a pre-pack method, please do access honest advice to ensure that it is the most appropriate option for your business. This applies to any insolvency process; it’s always best to seek advice early.
Discussing your situation can make you aware of any issues you may face before you do, such as wrongful trading, overdrawn director’s loan accounts or making preference payments. Our experts at 1st Business Rescue work hard to support you as a director. If you want to close your company with a bounce-back loan, contact us for support.
Closing and restarting a company FAQs
What is company liquidation?
There are three main types of company liquidation. The one that is most suitable for you will depend on your circumstances.
- Creditors’ voluntary liquidation – used by insolvent companies who are volunteering to close rather than being forced.
- Compulsory liquidation – used by insolvent companies who are being forced to close due to not paying business debts when they fall due.
- Members’ voluntary liquidation – used by companies who can afford to pay business debts (solvent companies) over a period of time.
Contact us today to identify which liquidation process is right for your situation.
What are the reasons for liquidating a company?
A director may choose to liquidate a company for many reasons, such as struggling financially or simply wanting to move on to something else. Whatever your reasons, we’re here to support you every step of the way.
Should I consult a professional before liquidating my company?
Yes, you should always seek professional advice before liquidating a company. You will only be able to legally close a company if you appoint an insolvency practitioner. They will be responsible for completing the liquidation.
Always ensure that you get multiple quotes for liquidation, sometimes, the cheapest option ends up costing a lot more in the long run. Ensure that the insolvency practitioner has checked for hidden costs, such as debts or overdrawn director’s loan accounts. Get all liquidation costs in writing.
What are the potential consequences of liquidating a company?
If you have acted responsibly, you should experience no consequences of liquidating your company. However, if you have not acted responsibly, you may face some consequences.
These consequences will likely arise from wrongful trading within your company. You may face director disqualification, fines or being personally liable for company debts.
We can complete a thorough investigation into your business affairs to identify any issues you may face. It’s important to understand any pitfalls for you personally before you make any decisions. Get in touch today for honest, professional advice.
I'm Chris Worden, Managing Director at 1st Business Rescue. With over 7 years of experience, I help UK directors navigate the complex world of UK corporate insolvency. We offer free and independent advice to UK directors and advise them about what options may be available to them if their limited company starts to struggle.
I am passionate about helping other directors overcome their business challenges and get back on their feet, as I was once in the same position as them. I had a business that became insolvent, and the advice out there was confusing and overwhelming. I am here to provide honest and valuable advice to UK directors.
I am proud to say that we are one of the only 5-star corporate insolvency companies on Trustpilot with hundreds of 5-star reviews, and we publish videos weekly on our YouTube channel. Our channel is designed to educate UK directors about insolvency and debt advice. Check it out here:
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