Are you a director of a UK-based company that operates on a global scale? Perhaps you’re thinking about closing your business? Then it’s important to be aware of the different processes that must be adhered to in order to close the business successfully. In this blog, we’re letting you know more about cross-border insolvency.
Companies often close for various reasons, many of which are beyond the control of the directors themselves. One of the most common reasons why companies close is if they become insolvent.
An insolvent company cannot afford to pay its debts when they fall due or its liabilities are worth more than its assets. In contrast, a solvent company can afford to pay its debts on time and will likely have more assets than liabilities.
What happens if my company becomes insolvent?
If your global company becomes insolvent, then it’s vital that you seek professional advice. We speak to many directors who have buried their heads in the sand and, unfortunately, made the situation worse for themselves.
It’s crucial to address these issues upfront, and you may even find that there are options available to help recover the company. Some of these examples may include a company voluntary arrangement or an administration.
It’s essential to seek accurate advice before initiating one of these business recovery options, as they can be costly and may not be suitable for everyone. Find out more about liquidation vs administration.
Liquidating a global company
Choosing to liquidate your company can be challenging, and there are many elements that must be considered and adhered to. When it comes to a global company, you’ll not only need to ensure that you meet UK regulations, but also that you meet local insolvency laws in jurisdictions where the company has assets, creditors or operations. There are often many laws around finances, which can be challenging to navigate.
We’re going to let you know some of the most important aspects to consider when liquidating a UK-based company that operates globally. In England, you will need to follow the Insolvency Act 1986 and other cross-border insolvency regulations.
Ensuring you meet legal obligations during foreign insolvency proceedings
Every country and jurisdiction has its own specific legal requirements that businesses must comply with. Before you begin the liquidation process, take the time to assess your obligations and determine what needs to be done.
If directors do not comply with the laws in each area, they may face consequences, including penalties and further legal action. During the process, you may hear the term ‘centre of main interests’, which is part of the UNCITRAL model law. You will need to look into the Cross-Border Insolvency Regulations 2006 (CBIR) and the Model Law on cross-border insolvency. Directors should also be aware of changes as a result of Brexit.
Managing assets correctly
Businesses often have many assets, and if a director finds themselves selling assets below their value, they will likely face legal action. It’s really important that you seek advice from an independent valuation company and retain all documentation relating to the sale.
Global companies are likely to have more assets than national ones; for example, they may hold foreign bank accounts or own property abroad. Read our blog on digital asset treatment.
Before you begin the process, ensure you have a clear understanding of all your company’s assets and any debts it owes. If you plan to dissolve the company, you must ensure that there are no outstanding debts and that the company has not been trading for at least three months prior. If you cannot prove this, then you will need to use a liquidation procedure.
Informing employees correctly about insolvency proceedings
Closing a company can be tough for the director, but also for the employees. It’s vital that you are honest with employees about your intentions. Ensure that you follow all guidance and that employee rights are adhered to regarding notice periods, salaries and other benefits.
You will need to look into the specific information you need to inform employees about, depending on the area in which they are employed. UK employees may be entitled to redundancy pay.
What to look out for with cross-border insolvency
Tax implications
Every method of company closure has different tax rules. You should ensure that you have spoken to a professional about these options before agreeing to a specific method.
Legal implications
Ensure that you are clear about your legal responsibilities as a director. These may vary, but generally include operating in the best interests of your creditors. Every area may have different regulations.
Reputation in insolvency proceedings
As a company director, your reputation is likely to be important to you. By following the correct procedures for company closure, you can better protect your reputation.
What options are available to me for insolvency proceedings in England?
If your business is insolvent and you want to close it, then you have two options. The first option is a creditors’ voluntary liquidation. This is a popular choice, and it often reflects positively on directors as they have chosen to place the company into liquidation themselves, therefore acting in the best interest of creditors. It is a good example of a director following their duties during insolvency.
Another option is compulsory liquidation, although this may not reflect as positively. This shows that the director has not been proactive and has therefore been forced to close the business by creditors. The court starts the process.
When deciding to close your UK-based company that operates worldwide, it’s crucial that you consider your options carefully before you make a decision on cross-border insolvency. At 1st Business Rescue, we’re here to help with all aspects of company recovery and closure.
We provide trusted, confidential advice to support business directors, and we’ll be more than happy to help you. Contact us today to see how we can help you with tailored advice on insolvency proceedings.
Justin Barker
I’m Justin Barker, the Managing Director at 1st Business Rescue. I have over 25 years of experience providing insolvency advice to business owners.
I understand how challenging it can be when dealing with financial difficulties within your business. It’s easy to ignore the problem and hope that it disappears, but this is often the worst thing you can do. Our dedicated team is here to provide honest, valuable advice to help UK directors deal with their personal situations in the most appropriate way.
No case or circumstance is the same, but I can guarantee that I am there to give you the best advice.
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