Where to begin
If you’re considering liquidating your limited company, then there are numerous factors to consider. The most important one is whether the company is solvent or insolvent.
The corporate insolvency test is a way to understand if your company is insolvent. The test is made up of 3 parts and here they are:
- Cashflow Test – Very simply, can you pay your company debts when they fall due? There is also a requirement to consider whether you will be able to pay your debts in the near future.
- Balance Sheet Test – This is where you look at all the companies assets, stock, machinery, plant, money owed and set it against the liabilities of the company. Do your liabilities outweigh your assets?
- The Legal Action Test – Does your company have any CCJ’s or have you been issued a stat demand? If you are unable to pay these debts and don’t dispute them it’s highly likely the company is insolvent.
If you fail any of these tests, it’s very important that you take advice EARLY. The earlier you speak to someone the more options there will be available in most cases. I hope this has been helpful and if you need a confidential, no strings and no obligation chat then let us know. You can book a meeting direct here https://meetings.hubspot.com/chris-worden
If your company is solvent, then there are a couple of options for you to consider. The first being a dissolution, also called ‘striking-off, and the second being a Members’ Voluntary Liquidation (MVL).
If your company is insolvent, then you may have little choice but to liquidate it. This can be either a voluntary liquidation or one that is forced upon you by the company’s creditors. In our experience, it’s always better for the director to go down the voluntary route and to take advice as soon as you realise that the business has become insolvent.
1. Do you want to continue trading?
Even if you may be struggling with financial setbacks, you may still want to continue trading and feel that the business could recover. If this is the case, then there are formal agreements, such as a Company Voluntary arrangement (CVA) or a time-to-pay structure, which can help you to consolidate your debts and allow the company to continue.
2. Do you want to restructure the business and then restart it?
It may well be that the company is not viable in its current state and that it would benefit from a restructure. Depending on the intricacies of the business and the value of its assets, a pre-pack administration or a pre-pack liquidation may be appropriate. If this is the case, then you may be able to buy back your assets at market value and restart the company under a new name.
3. Do you just want to walk away from the company and its debt?
Again, the best course of action depends upon the complexity of the business, as well as the value of its book debts and other assets. In certain situations, placing the company into administration will yield a better return for creditors, and it will also clear you from all director duties. Otherwise, you may wish to consider a Creditors’ Voluntary Liquidation (CVL). This is where any assets that are realised are then sold and the business dissolved. The company will then cease to exist, together with any remaining debt.
If you’re considering liquidation as a possibility for your company, our experts at 1st Business Rescue are here to advise you on all the available options and to help you decide which one is the most appropriate for your situation.