What happens in an insolvent company liquidation? (Guest post for dailybusinessgroup.co.uk) – Daily Business

While it can feel like an admission of failure, if continuing to trade and accruing more debts would worsen the situation, putting your company into a voluntary liquidation may be the best way forward.

So, what can you expect when your company enters an insolvent liquidation?

Recognise the signs of insolvency

As a company director, you should always know whether your company is solvent or insolvent. It will help highlight issues early and means you can alleviate those issues before they threaten the company’s future, and plan for what needs to be done.

These signs of insolvency could include:

• Issues in maintaining a consistent cash flow or balance sheet
• Legal action against the company, including, but not limited to:
  • Statutory Demands
  • County Court Judgments (CCJs)
  • Winding-up petitions

While these aren’t a guaranteed sign of insolvency, they can indicate problems within the company which could lead to future issues if left unaddressed. So, you should act quickly to stand a better chance of avoiding such problems, and to achieve your desired outcome.

Speak to a licensed and regulated insolvency practitioner

If, after looking into the company’s financial situation, you spot signs of insolvency, you should seek advice from a licensed and regulated insolvency practitioner. These highly trained and experienced professionals can provide free, impartial, confidential advice with no obligation. While it might be tempting to go for a cheaper option, doing so comes with greater risk. Advisers without the appropriate licenses can’t carry out formal insolvency proceedings, and you may receive a worse quality of service as a result.

Depending on your company’s situation and what you want for its eventual outcome, liquidation might not be the only option.

Your other options may include:

• Formal repayment arrangements
  If your company has a viable business model but is hindered by burdensome debts, it may be possible to repay an affordable amount of those debts in tailored, monthly instalments. This can be achieved through a Company Voluntary Arrangement (CVA), which allows the company to continue trading for the duration.
• Restructuring the company
  If the company has deeper-rooted problems, restructuring may be required to return it to a profitable state. Administration can offer the company breathing space by pausing creditor pressure while the insolvency practitioner investigates the company’s situation and makes the changes necessary to make it viable and appealing to potential buyers.

If neither of the processes listed above are suitable for your company, it should close by entering a Creditors Voluntary Liquidation (CVL). This allows the company to close in an orderly manner, removing creditor pressure and stopping further legal action.

After liquidation

Once your company is liquidated, its unsecured debts are gone. As the company’s director, if you haven’t signed personal guarantees and you’ve acted within the company’s best interests leading up to and during the insolvent period, you shouldn’t be held personally liable for the company’s debts. Should you wish to, you can set up a new limited company once the old one is closed and it ceases to exist. However, there can be restrictions and limitations around using the old company’s assets and a similar name.