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I Am Being Threatened with Liquidation - What Are the Effects of Liquidation on a Company?

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I Am Being Threatened with Liquidation - What Are the Effects of Liquidation on a Business?

After speaking with a debt collector earlier today I’m concerned about the possibility of liquidation. The conversation was brief but I was notified that they may attempt to get a court order to put me out of business and liquidate all of my company’s assets to recoup what I owe them. I have inquired about postponing the payment deadline but they seem to be done working with me. If my company goes through liquidation, what will the end result be for me as a director of the company? 


Answer

When a company enters into liquidation all trading ceases immediately. The liquidator’s job is to market and sell the assets of the company in order to recoup as much money as possible to contribute towards repayments.

Although dissolution does not have to be the end result, most of the time the company is in fact dissolved and ceases to exist after liquidation. However, in rare cases, if enough funds are raised through the sale of assets to repay all debts then the company might be able to resume operating.

As a company director you would be left without a job if the company were dissolved, unless your contract transfers to a new company under TUPE regulations, in which case you’d then be employed by them. If your only role is as the owner of the company then obviously you would be left without a position because the company would be brought to an end.

If you’re not happy about losing all of the progress made through your business then a pre-pack administration sale could give you the opportunity to purchase some of the company’s assets; these assets could then be transferred to a new company in a process referred to as “phoenixing.” This is also called a pre-pack administration sale because it involves the pre-arrangement of the sale of assets.

A pre-pack sale would still usually involve the ultimate liquidation of the company. The creditors would still get the proceeds from this sale, which is why the court approves such a process – it gives creditors a guaranteed opportunity to recover at least the value of the company’s assets. 


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