Are You Considering Liquidation? Read this First.
If your business is struggling financially then it’s quite likely that you’ve thought about liquidation and company closure. Liquidation doesn’t need to be a scary experience and there’s lots of advice to help make decisions and steps easier for you.
If you’ve found yourself researching liquidation on the internet then you may be feeling more confused than before you started. There is so much conflicting advice out there it can be quite hard to understand what applies to you and your company. I’m sure you’ve got lots of questions that need answering such as ‘will I be made personally liable for the business debts?’ or ‘can you liquidate with a bounce-back loan?‘ There is a lot to think about but with honest and quality guidance, you won’t need to spend time worrying about closing your company. At 1st Business Rescue, we provide confidential and impartial advice to business directors so that we can help you through the whole process. Most people that worry about liquidation and company closure feel much better after even just a short conversation with one of our experts.
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What does liquidation mean in business?
Maybe this is the first piece of research that you’ve done into liquidation and company closure and therefore you might be wondering what liquidation actually means. Worry not, 1st Business Rescue is here to make things simple and clear for you. Our commitment to you is to explain everything to you in an easy-to-understand manner.
The process of liquidation can only be applied to the closure of a limited company and involves closing the business, selling its assets (if there are any) and taking it off the official register at Companies House, the company will then cease to exist. Generally, a business enters liquidation due to financial difficulties but may also enter a solvent liquidation if the company can afford to repay all of its debts and still have over £25,000 left in the bank.
Entering a liquidation
A company may enter liquidation for a number of reasons, the most common being that you are experiencing cash flow issues. It needs to be said that sometimes businesses enter liquidation through no fault of their own. A business may become insolvent due to not being paid what they are owed which has left them in a position where they cannot repay their debts. If this occurs, it is not unusual for the business owner to try and ride the wave and think optimistically about gaining a new client who can live up to their needs. We would recommend gaining some impartial and honest advice if you ever feel even slightly worried about your business’s cash flow needs. The sooner you seek advice, the more options that may be available.
Before entering a liquidation, one of the key things to check for is an overdrawn directors loan account and any preferential payments. Ensuring that you are aware of your financial situation is crucial to avoid issues further down the line.
Once a company enters into liquidation, the appointed insolvency practitioner is responsible for selling any assets of the company, if there are any, in order to raise money to return to the company creditors. These assets can include anything but commonly include cash, buildings, plant machinery, debtors, furniture, and vehicles.
We have seen a huge influx of contractors seeking insolvency advice due to the IR35 tax reforms. If you are a contractor who no longer needs their ltd company then you should seek advice straight away. Depending on whether your company is solvent or insolvent we can assist you from start to finish with IR35 and closing a limited company.
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If your company is solvent, you may choose to strike it off or enter a Members’ Voluntary Liquidation (MVL). Striking the company off is easily done and costs you just £10. If the business has over £25,000 left once you pay off all your debts, then an MVL may be a more tax efficient way of taking your income from the business.
If you are beginning to struggle with company debts but your business remains solvent, you may be eligible for business administration. When it comes to choosing liquidation vs administration, there are many elements to consider such as whether the business will survive following a restructure. We would recommend assessing your ability to enter administration before folding a company.
If your company is insolvent, then it will need to be liquidated via a voluntary liquidation. You will need to appoint a licensed insolvency practitioner and all the unsecured business debts like HMRC and a Bounce Back Loan would be written off.
How Does Liquidation Work?
It all starts with you making an enquiry, you will speak to someone today who will listen to your company issues and offer some suggestions on your options. Our team are experts in liquidation advice.
The next stage will be to send you over a full proposal, outlining all the costs and exactly how you will pay for them, we will also help you assess whether you can claim director redundancy which you could use to fund the liquidator’s fees, If you have been on the payroll for over 2 years then you should qualify. The average claim is £9,000 so you could end up with some money in your pocket.
If you are happy with our proposal, we will engage you as a client and collect all the information that we need from you to put your company into liquidation. You will be sent your liquidation papers to sign and once you do this, a creditors meeting is set. If you are closing a limited company with debts, we will assess the best ways of dealing with this for both you and your creditors.
At the creditor’s meeting, the insolvency practitioner becomes appointed and your role as the director is finished. From this point, all pressure from your creditors is stopped and the insolvency practitioner deals with them.
After the creditor’s meeting, the insolvency practitioner will begin the process of company closure and information will be removed from Companies House. At this point your company status is ‘in liquidation’.
What happens to employees when a company goes into liquidation?
Once a company goes into liquidation the employees will be made redundant. At this point, the employees can start their claims for redundancy. In addition, the employees will be entitled to make claims for holiday pay, unpaid wages, and payment in lieu of any notice period.
If the business does not have sufficient funds to pay this, which is highly likely when a company has closed down, the employees will make the claim to the National Insurance Fund.
What happens when a company goes into liquidation?
The first thing that usually happens when you inquire about entering liquidation is that you’ll be asked to provide accurate information regarding your financial situation. Please remember that all calls are in the strictest of confidence and our main aim is to help you understand your position in full, with no jargon and we are not here to judge you. We can then consider all the options that are available to you before giving you a detailed proposal. What makes 1st Business Rescue unique in this is industry is that all our initial advice is tailored to the director. We are committed to making them aware of any potential pitfalls or problems that they may face by entering into an insolvency procedure, we will also assist with preparing a strategy to overcome or mitigate any potential issues before they arise.
The main items that are achieved in a company liquidation are as follows:
- All unsecured debts are written off, this includes debts payable to HMRC and Bounce Back Loans claimed during the pandemic.
- All legal action against your company ends.
- Creditors and their financial demands will be dealt with by your chosen insolvency practitioner.
- Your business will be closed down immediately.
- You can stop worrying and start thinking about the future.
There is no one size fits all approach when it comes to liquidating a company. One of the options that may suit could be a pre-pack liquidation.
A pre-pack liquidation involves closing down an insolvent company and selling the assets to a new company, often run by the same directors. There are specific criteria that must be met to see if a pre-pack liquidation is suitable for your business.
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Liquidating a company and starting again
As long as you have followed the correct procedures, you should have no problem with liquidating a company and starting again. There are some rules and regulations when it comes to elements such as the name of your new business. You will likely only experience problems with closing a company and opening a new one if you did not follow the correct procedures or you have committed wrongdoing previously and have since been disqualified as a director.
Can I close my ltd company with debts to HMRC?
If you’re thinking of closing a limited company with debts to HMRC then you may be better off using a voluntary liquidation method. HMRC are one of the largest creditors and are unlikely to stop asking for money. If they believe that your company is insolvent, they can place you into a compulsory liquidation, which could open the door to more trouble further down the line.
How to close a limited company that never traded
If you are thinking of closing a limited company that has never traded, the process should be simple. When you apply to strike the company off the register, you should ensure that you have business records that prove you have never traded through the company. Providing that your information is accurate, your company will be struck off the register at Companies House and the business will cease to exist.
How to liquidate a company for free
We know what you’re thinking, how do you liquidate a company with no money? It’s important to remember that there are usually options, so don’t panic. At 1st Business Rescue, we often come across advertisements stating that you can liquidate your company for free. This is not true. In order to correctly liquidate a company, you must appoint a licensed insolvency practitioner who should assess your business’ position and attempt to find money to pay off your creditors. Find out who gets paid first in a liquidation. All of this cannot be completed for free, therefore advertisements for free company liquidations are not correct. You should always be aware of what’s included within your liquidation pricing so that you can avoid any nasty surprises further down the line.
The liquidation process
As soon as your company becomes insolvent you should take professional advice. The easiest way to understand whether you are insolvent is to answer these 2 questions.
- Can your business afford to pay its debts on time?
- Are the liabilities of the business more than the company assets?
If you can’t afford to pay your business debts on time then it is a clear indicator that your business has become insolvent and you should speak to someone straight away to avoid any accusations of trading while insolvent.
After speaking to one of our team we will provide you with a full proposal outlining the process as well as any costs that are involved.
On acceptance of your proposal, you will be issued with liquidation papers for your approval.
Your creditors will be given notice of your intention to place the company into liquidation and a creditor’s meeting with be arranged for around 4 weeks.
At the creditor’s meeting, you will officially appoint the insolvency practitioner and at that point, your duties as a director are over.
The final stage of the liquidation process is simply the closure of the company. This means the business will be fully closed and information will be withdrawn from Companies House.
Deciding to enter a liquidation is a hard decision to make regardless of the position your business is in, you’re probably still thinking ‘I don’t want to liquidate my company’, but the truth is that sometimes it is the most appropriate option. It is very important to seek liquidation advice from a trusted professional as soon as you can. Most directors come off the phone from us feeling relieved and wishing that they had got in touch sooner. We’re here for all liquidation advice.