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Written by Keith Tully
Is your company facing bankruptcy and liquidation of its assets? If so, let Real Business Resuce help you understand what you can expect each step along the way. Believe it or not, we may be able to find a viable solution to rescue your company even from the brink of bankruptcy!
Being bankrupt and liquidating a company sounds like a fairly straightforward procedure, but one of the main aspects to keep in mind is that there are very specific laws in regards to liquidating a company as defined by Insolvency regulations. Directors are often stressed over being caught up in wrongful trading and this could likely be the case if an insolvent company continues to trade, knowing there is a cashflow problem and creditors aren’t likely to get paid. If you believe your company is no longer viable and need to start the liquidation procedure, then the first thing to do is seek a professional business liquidation & bankruptcy advice service without delay.
Liquidation and Bankruptcy: Common Misconceptions
There appears to be much confusion in the business world as to just what liquidation actually is. Since there are three distinct types of liquidation recognised in the UK, companies often believe that they must be bankrupt prior to being liquidated. On the other hand, there are those directors who believe that a company can be legally liquidated at any time, whether viable or insolvent. In reality, there are three distinct types of liquidation which are:
Members Voluntary Liquidation
Creditors Voluntary Liquidation
If there is any question that a company is insolvent or soon to be so, the directors should act quickly to seek business debt advice from a licensed Insolvency Practitioner (IP). Bankruptcy advice is an invaluable service offered by Real Business Rescue that has proven effective for a great number of UK companies, some of which avoided bankruptcy altogether.
Members Voluntary Liquidation (MVL)
Unless a company is solvent, Members Voluntary Liquidation is not an option. This is where many companies turn to Real Business Rescue because there seems to be some question as to exactly what the legal definition of solvent is. There are strict regulations in regards to MVL and the statutory rule at the centre is in relation to solvency. Loosely speaking, a solvent company seeking liquidation is one in which all debts can be paid within a statutory 12 month timeframe along with any statutory interest. As well, the company must show that it has sufficient assets to pay for the cost of liquidation. Bear in mind that a licensed Insolvency Practioner must head up the liquidation. This is the law!
Creditors Voluntary Liquidation (CVL)
Often it is referred to as Company Voluntary Liquidation or simply Voluntary Liquidation, but both of those are misleading. In actuality, the process is called Creditors Voluntary Liquidation (CVL) which sheds a whole new perspective on what is actually transpiring. The thing to keep in mind is that CVL is for companies which are no longer viable, in other words, for all intents and purposes bankrupt. If a company is viable and wants to close up shop and liquidate assets, this is another matter altogether (Members Voluntary Liquidation) and much more straightforward and easily accomplished. It is imperative that you keep the two procedures separate in your mind because doing the wrong thing could result in heavy personal and business penalties.
The fact is that any creditor can petition the court for a winding up order if your company has an outstanding debt of at least £750 which remains unpaid for 21 or more days. If your company is served with a winding up petition you should immediately seek the assistance of a business liquidation & bankruptcy advice service. Also, be aware of the fact that your company is deemed to be insolvent at this point and you should cease trading. If the matter is cleared up and you are not bankrupted, it is possible to once again start up business as usual, but in most cases this isn’t a realistic outcome. Usually companies that have trouble paying one creditor have others which have gone unpaid as well which will result in being declared insolvent/bankrupt.
Liquidation as It Relates to Bankruptcy
Once a business has been declared bankrupt, all operations cease and it is the prime focus to pay off creditors, amongst which may be the government itself. This is where proper liquidation plays a key role. All accounts will be frozen and the administrator will then begin liquidating those accounts and all assets to use the proceeds to pay debt. Of course, this is one of the major disadvantages of liquidating a company in terms of realising any revenue back from the company. If a company has gone bust, any and all monies will be paid to creditors per a pre-defined schedule based on prioritisation. However, it cannot be stated enough that there are ways to turn around an insolvent company much of the time. It is rarely in the best interest of any party to liquidate an insolvent company.
Why Is Liquidation of an Insolvent Company Not Always the Best Option?
Once the procedure for liquidating an insolvent/bankrupt company is better understood, it becomes clear why liquidation isn’t the best alternative. Since the company is operating at a loss and unable to pay its debt, there is little hoping that the sale of assets and cash on hand will be enough to pay all creditors, including HMRC, VAT and PAYE 100% of what is due them. A Compulsory or even a Creditors Voluntary Liquidation will most likely net enough to pay pennies on the pound, but most creditors really prefer to receive the entire amount due them. Although there are advantages to liquidating a company, creditors don’t look favourably on not being paid in full.
In all, bankruptcy and insolvency are often used interchangeably, but they are not necessarily the same thing. A bankrupt company has no hope of being rescued whilst an insolvent company can often be turned around. Real Business Rescue has helped to turn literally hundreds of insolvent companies around to a profit, but the time to act is now. Never wait until being forced into bankruptcy if there is any hope of future viability. Hundreds of thousands of companies in the UK face financial problems from time to time and there just might be a solution to yours. Call Real Business Rescue’s team licensed of Insolvency Practitioners today for detailed information on how to avoid liquidation and bankruptcy.Linked In Google+ Twitter