Businesses in Debt – Understanding Company Liquidation

EDITOR’s Note: This is a gust post by Noel Freeman, a business debt expert from the UK

It’s not just individuals who struggle with debt. Businesses too can suffer the effects of economic downturn and face excessive debts. When a company becomes insolvent, there are a number of solutions available to them that will enable them to continue trading. These include a CVA, administration or internal recovery plan.

But what happens to a business that is so far in debt that the potential recovery solutions are simply not viable? The final solution is company liquidation. Company liquidation is the final option, the last remaining possibility after absolutely every other alternative has been investigated. It involves: • Selling off the company assets. • Using the funds raised to pay creditors. • Closing down the business.

There are two different types of company liquidation:

• Voluntary liquidation • Company liquidation

Both do involve the ultimate ceasing of trading by the company. However there are slight differences. With voluntary liquidation, it occurs where the directors take the decision to initiate proceedings and

appoint an Insolvency Practitioner to wind up the company. Providing the directors conduct themselves well throughout, there need be no lasting consequences for the directors themselves. Compulsory liquidation, however, is initiated either by a creditor or a Government Agency like HMRC. This occurs when a company has failed to make a payment they owe, despite “reasonable efforts” being taken by the creditor to retrieve the funds. The company in question will be served a winding up petition and the courts will appoint a liquidator. Compulsory company liquidation can indeed have potentially lasting consequences for the directors and ought to be avoided wherever possible.

Noel Freeman is a business debt expert from the UK.