Liquidation

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Liquidation

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Why should you read this guide?

The unscheduled end to a business is never an easy thing to go through. Many business owners find themselves in a situation where they feel the business cannot go on but are unsure what to do about it. There is also the problem of knowing who to ask as it is not the easiest subject to bring up. This guide will introduce you to some of the terms that will be used at this point in the life of a business and give you some options on what you might do.

Background

If you are reading this guide you may have asked questions about the future viability of your business. The main legal issue here is if the business is insolvent or not. Your company may be insolvent if any of the following apply:

You owe more money than the value of the assets in the business
Your cash flow does not allow you to pay creditors when they are due
If someone has taken legal action against you to recover debt

If any of these things apply your company may be insolvent and you must take action to sort this. Below are the most common actions in the case of insolvency.

Company Voluntary Arrangement (CVA)

This is an arrangement whereby you agree to pay all or some of your historic debt from future profits. It allows you to strip out staff costs, leases etc with little or no cost. You need to do this through a professional adviser but it allows you to stay in control and continue to run your business.

Administration

This action is controlled by someone else as the court may appoint an administrator to your business. The administrator may be an insolvency practitioner and their role is to run your company for you. The goal must be to return the business to profitability (and hopefully survival) in one form or another. By putting the company into administration you stop any legal action against you.

Appointing a receiver

This is something that can be done by a secured creditor e.g. a bank if you borrowed money from them prior to September 2003. The aim here is to realise assets with a view to recovering the debt on behalf of the bank or other lender. This usually means selling the business as a whole or selling some of the more profitable assets. The money raised goes towards paying off the secured creditor and of course covering the receiver's fees.

Liquidation

This happens when a creditor has finally given up trying to obtain money from you. Many actions will have been taken before this point and failed. The creditor needs to apply to the court to appoint a liquidator. As long as the court sees no dispute to pay and that the creditor has taken action to recover the debt then the liquidation course will proceed.

Summary

If you believe that you may be insolvent then you need to take action. There is no point in burying your head in the sand as actions only get worse as time passes. Seek advice from your accountant in the first instance as they will be able to advise you of the best course of action.

Further information

More information on this subject can be found from Companies House website http://www.companieshouse.gov.uk/infoAndGuide/faq/liquidationInsolve.shtml or by speaking to your accountant.