Manufacturing businesses are an important part of the global economy. However, similar to many other UK businesses, they can face significant challenges, many of which are out of their control. In this blog, we’re providing sector-specific liquidation advice for manufacturing businesses.
Businesses can close for a variety of reasons, whether it’s due to retirement, starting a new business, financial issues or something else. The most important thing is that you seek personalised advice for your situation. Every business is different, and every element must be thoroughly checked before liquidation is completed.
The first aspect to consider is whether your business is solvent or insolvent.
Solvent: Your business can afford to pay any debts on time, or has no outstanding debts.
Insolvent: Your business cannot afford to pay debts on time, or its liabilities are worth more than its assets.
You will need to be completely honest about your business’s financial situation, as this will determine which methods of liquidation you can and can’t use.
Solvent companies can use a member’s voluntary liquidation, whereas insolvent companies will need to use a creditor’s voluntary liquidation or a compulsory liquidation. As we mentioned previously, it’s crucial that you seek professional advice on this before you make any progress.
Common challenges in the manufacturing industry
UK businesses have faced a plethora of challenges in recent years, including handling the pandemic and rising inflation. Here are some common challenges for manufacturing businesses.
- Price inflation and cash flow: The manufacturing industry often deals with sudden price increases, which can be tricky to manage.
- Ensuring compliance: Manufacturing businesses must meet a wide range of compliance requirements.
- Technological changes: Manufacturing businesses are required to remain ahead of technological advancements in the industry.
- Supply chain issues: Manufacturing businesses are usually part of a wide network containing suppliers, which means delays can disrupt the rest of the supply chain.
- Economic downturn and late payments: The UK economy has faced many challenges, which are passed on to businesses, such as reduced cash flow.
- Skill shortages and operational challenges: Unfortunately, there is a shortage of skills in the manufacturing sector, meaning that fewer individuals are being trained.
Other challenges include creditor pressure, adhering to legal duties and maintaining your company’s financial records.
What are my options for liquidation?
Manufacturing businesses have a variety of options available to them, depending on their circumstances. You should always discuss these with your appointed insolvency practitioner. Here are some of the most common options that manufacturing companies may be eligible to use, even if you owe money.
Creditor’s voluntary liquidation
A CVL is one of the most common liquidation methods used by insolvent companies. With this method, a licensed insolvency practitioner is appointed to assess your financial situation, sell company assets to pay back outstanding creditors and close the company.
In some cases, not all of the company’s debts will be paid. If a company and its director have not committed any wrongdoing, the outstanding debts are likely to be written off. If a director has committed wrongdoing or not adhered to their duties, then they may find themselves personally liable for company debts.
In some cases, directors who are employed by their company may also be eligible for director redundancy pay. To qualify for director redundancy, you must have worked for the company under an employment contract for at least two years, worked a minimum of 16 hours per week and received a salary through PAYE.
Member’s voluntary liquidation
An MVL can only be used by solvent companies. It provides a structured way to close a company down and is often seen as more tax-efficient than many other methods. Within this method, shareholders can distribute excess funds more easily. Directors must make a statutory declaration of solvency, which means that all debts can be paid within 12 months.
Pre-pack
Manufacturing companies may look into the process of a pre-pack sale. This is when a company sells the business and its assets before entering into liquidation. All of this must be completed at a fair market value; otherwise, you may face legal action. The business and assets are transferred to a new company, which can help to preserve jobs.
Administration
If there is a hope of recovery for the company in question, then an administration may be a suitable option. Administration gives company directors some breathing space while a licensed insolvency practitioner looks into their affairs. The company can be rescued, or it can be used to promote a better outcome than liquidation would lead to.
Manufacturing companies can also consider compulsory liquidation, but you should be aware of the Insolvency Act regulations. Not adhering to these could lead to serious consequences, including legal proceedings. You should always seek advice from an insolvency practitioner if you are worried about your actions, whether you use a solvent or an insolvent liquidation.
How to reduce the risk of financial problems
Many liquidations result from financial issues, prompting business owners to search for better ways to manage this aspect of their companies.
In some cases, financial problems can occur through no fault of the company directors. This can be challenging to deal with, but it’s important to be aware of your situation and take the necessary steps.
We always recommend seeking professional advice as soon as possible if you begin struggling financially. This can reflect positively on you as a director because you are prioritising your company’s creditors’ interests.
- Keep accurate financial records
- Maintain good relationships with creditors
- Complete risk assessments when agreeing to work with new clients
- Request deposits prior to carrying out work
- Sell assets which are not being used
- Maintain efficiency in your business
At 1st Business Rescue, we always listen. We put you first and aim to find the most suitable outcomes for your business. We have worked with many manufacturing businesses over the years, providing accurate advice based on their circumstances. Read about the 2025 budget changes and how they impact liquidation.
We highly recommend that you reach out to a professional for support, and that’s where we can help. Contact us today to discuss your situation in more detail.
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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