Going into liquidation can be a stressful time. In this blog, we’re letting you know 8 tips for going into liquidation for the first time.
If you’re reading this blog, you’ll likely have many questions. We know because we’ve been exactly where you are, having to close a company using a voluntary liquidation.
There are various types of liquidation you can enter. One of the most common types is a creditor’s voluntary liquidation. This type of liquidation offers you more protection as a director and shows that you have adhered to your director’s duties by seeking advice early.
Tips for going into liquidation for the first time
Tip 1: Be prepared for some worry, stress and overwhelm
We deal with directors needing to liquidate every day. On straightforward jobs, we can say to the director, ‘Don’t worry about it, you’ve tried your best’ and more, but directors are unlikely to take any notice of this. What this means is that if you’re going to have some worry, then the best thing to do is look after yourself.
Get yourself some rest and turn off your work phone at 5pm. Usually, there’s not a lot you can do about emails that come in after the working day has finished. All you’ll end up doing is worrying yourself more and end up having a poor night’s sleep.
It’s highly likely that you’ll experience stress when entering liquidation, so look after yourself. Eating well, doing exercise and getting enough sleep will be very beneficial.
Tip 2: Be prepared for a lot of paperwork
With liquidation comes a lot of paperwork for you to deal with. When the liquidation paperwork arrives, set yourself up in a relaxing environment and get the paperwork done. Do not delay signing the paperwork, get it done and sent back to your insolvency practitioner.
Tip 3: Get an accurate picture of where your business is at
Make sure that you have up-to-date statements. Consider who you owe money to, and make sure all of your returns are sent in. You’ll find yourself in more trouble for not getting your returns in than you will for not paying them. Get your VAT return in, your PAYE and get a final set of accounts.
If you don’t take the time to get a final set of accounts, you won’t know if you have an overdrawn directors’ loan or not. These accounts need to be up-to-date and accurate.
Tip 4: Understand your personal liabilities
You’ll contact an insolvency practitioner regarding a liquidation, and they’ll let you know how much it will cost. Many people will sign up with the first liquidator they find and then have people knocking on their door for more money. This might occur when an insolvency practitioner is trying to recover fees from you after you’ve entered liquidation. This will likely be for things like overdrawn directors’ loans.
It’s very important to understand your personal liabilities in a liquidation. Find out if you have an overdrawn loan account and how much money you owe, and decide what you’re going to do about it.
When you have an overdrawn loan account, it means you owe the company money. If you owe the company money when entering liquidation, the insolvency practitioner is duty-bound to try and get that money from you.
If you’ve really got no money, it’s unlikely they’ll be able to get anything from you. However, if you have savings, equity in your property or other business interests, then it’s very important that you get this issue dealt with promptly with your insolvency practitioner. Find out how they will settle the overdrawn loan account once you enter liquidation.
Tip 5: Build a relationship with your insolvency practitioner
Once you decide who you’ll liquidate with, get on with them. Be courteous to them, comply with them, and answer the phone when they call you. Be honest with them when they ask you a question.
There’s no point hiding things from an insolvency practitioner because they’ll find it. One of the best tips for going into liquidation for the first time is to be honest.
Tip 6: Do not be pushed or rushed
The minute that your company becomes insolvent, you need to take advice swiftly. There’s a difference between taking advice swiftly and being forced and rushed into making a bad decision without understanding all of the consequences. Take your time with the process of finding an insolvency practitioner who can actually help you. Read our blog on the signs you need a new insolvency practitioner.
Tip 7: Get a full proposal before you sign with an insolvency practitioner
It’s essential that you get everything in writing before signing up with an insolvency practitioner. Some practitioners won’t want to do the work pre-appointment that will allow them to give you something in writing.
What you’re checking for is any potential accusations of misfeasance, overdrawn loan accounts to be settled, or any intercompany loans to be dealt with. For an insolvency practitioner to understand this and offer a viable solution, they will need to do some work. Ultimately, you’re asking them to do this work before you pay them or decide if you will use them. Some insolvency practitioners do not like this. These aren’t the right insolvency practitioners for you. Whoever you go with, make sure that you get everything in writing.
Tip 8: Take a look at our blogs and videos for advice
At 1st Business Rescue, we’re passionate about supporting you as the director. That’s why we have compiled answers to all of your questions surrounding liquidation and insolvency. Take a look at our blog and YouTube channel for honest advice.
We’re always happy to answer any questions you have regarding your company. We wish you the best with your company liquidation, and we hope our tips for going into liquidation for the first time have been useful.
I'm Chris Worden, Managing Director at 1st Business Rescue. With over 7 years of experience, I help UK directors navigate the complex world of UK corporate insolvency. We offer free and independent advice to UK directors and advise them about what options may be available to them if their limited company starts to struggle.
I am passionate about helping other directors overcome their business challenges and get back on their feet, as I was once in the same position as them. I had a business that became insolvent, and the advice out there was confusing and overwhelming. I am here to provide honest and valuable advice to UK directors.
I am proud to say that we are one of the only 5-star corporate insolvency companies on Trustpilot with hundreds of 5-star reviews, and we publish videos weekly on our YouTube channel. Our channel is designed to educate UK directors about insolvency and debt advice. Check it out here:
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