Liquidation Advice for Small Businesses

Are you a small business owner looking for more information on company closure? Then you’re in the right place. In this blog, we’re providing you with liquidation advice for small businesses.

What is insolvency?

It’s not uncommon for businesses to experience financial difficulties every now and again. Sometimes, this can be through no fault of the director. However, directors must take the correct steps when their business does start to struggle.

Insolvency is the term used for a business in financial difficulty. An insolvent company might be unable to pay its debts when they fall due, or its liabilities may be worth more than its assets. This can be extremely stressful for directors to deal with.

In contrast, some directors aren’t struggling financially and just decide they want to close the company. These may be labelled as ‘solvent’. A solvent company can afford to pay their debts when they fall due and has more money in assets than liabilities.

Unfortunately, the number of insolvent companies is on the rise.

Who is responsible for company debts?

It’s worth noting that insolvency is different to bankruptcy. Insolvency is a term given to businesses, whereas bankruptcy is a term given to individuals with no money to pay debts. When you have a limited company, the debts belong to the company itself rather than the director, as it is a separate legal entity. In contrast, sole traders will be responsible for their own debts and the company’s debts.

What are my options as a small business director?

There is a lot of conflicting information out there for business owners, which can make things like liquidation tricky. Ultimately, the best option for you depends solely on your circumstances and the outcome you want to reach.

If your company is insolvent and you want it to close, you should use a creditors’ voluntary liquidation process.

If your company is insolvent but you want to try to rescue it, you can use an administration or a company voluntary arrangement (CVA). Please be aware that there is no guarantee that your business will get back on track following the use of either of these methods. You really need to speak to a few professionals before you make the decision to use one of these options.

If your company is solvent but you want to close it, you can use a strike-off procedure. You must have no outstanding debts for this method to work. A strike-off is the cheapest way to remove a business from the Companies House register. Alternatively, you could use a members’ voluntary liquidation, which means you can organise to have more time to pay your creditors.

If your company is insolvent and you don’t want to do anything, you have a much higher risk of getting in trouble as a director. Directors who do not take action for their struggling companies end up having to deal with compulsory liquidation. This liquidation process begins with a winding up petition and means that you’ll have little control and will face increased director scrutiny.

This method of company liquidation will not reflect positively on you as a director. When you enter a liquidation process, your actions are assessed, which includes checking your limited company bank account and the actions of the company director. If wrongdoing is found, you may experience personal liability.

You will need to appoint a licensed insolvency practitioner for most of these.

small business liquidation

What are the right steps for my small business?

Every business’s situation is different. Therefore, giving limited company liquidation advice that fits everyone’s needs is difficult.

At 1st Business Rescue, we’re on hand to support you with all aspects of company closure and rescue. Therefore, if you aren’t sure what the right steps are for you, then you can pick up the phone and access professional advice. We’re here for directors and want to help you make the best decisions for your business and its future.

Generally speaking, here are the best steps you can take for your business.

Accept there could be an issue

The biggest mistake that business owners make in this situation is to bury their heads in the sand. This is not a good idea and could lead to you being forced into compulsory liquidation.

By accepting the financial issues, you are also adhering to your director’s duties. This will reflect positively on you as a company director.

Seek professional advice

When you’re in this situation, you must seek professional advice. Do not just take advice from one licensed insolvency practitioner and make sure that they really understand your situation.

Talking openly about your situation can help you see things more clearly. Additionally, you might even find that there are simple steps you can take to rectify the problem without actually needing to close the company.

Communicate with creditors

Businesses that are struggling financially will usually get a much better outcome when they are honest with their outstanding creditors. One creditor that you should definitely be honest with is HMRC. HMRC is the UK’s biggest creditor, so they are unlikely to stop chasing you if you owe them money. This type of creditor pressure is difficult to deal with.

HMRC has access to its own bailiffs, and being visited by them can be a stressful experience. They will be ordered to remove company assets. By being honest and communicating, you can reduce the chances of being visited by HMRC.

HMRC can offer some businesses a Time-to-pay Arrangement. This gives businesses more time to pay back the tax and money they owe. Be aware that this arrangement is not available to everyone, so it’s a good idea to seek professional advice.

Consider your options for company liquidation

When deciding on the best steps for your small business, you need to take your time. Don’t rush into a decision. Speak to a professional about your options as soon as you can. Then, take a bit of time to find the best option and take action. If you are choosing to close the company with debts, you will usually use a creditors’ voluntary liquidation (CVL).

If you choose to liquidate your company, make sure that you have all of the proposed liquidation costs in writing. Make sure your licensed insolvency practitioner has checked for any difficulties, such as overdrawn director’s loan accounts and personal guarantees. These hidden costs may cause issues down the line and could increase the prices you pay. However, if you know it’s been checked beforehand and you have the costs in writing, you should be able to stick to these costs for business liquidation.

Choosing to liquidate your small business can be stressful, but with the help of trained experts, you can make the right decision.

Do you need liquidation advice for your small business? At 1st Business Rescue, we can help. Our professionals can guide you through the process to achieve the best outcome for your small business. Contact us today.

Please get in touch and we’ll come back to you
without delay.

Call 0808 506 2246
Text 07717 738 167
Complete a Free Online Enquiry