Company Liquidation

The content on this page has been written by Eric Walls and approved by Chris Ferguson Licensed Insolvency Practitioner and Managing Director of RMT KSA

Below are the most common reasons why people are discouraged from taking necessary action to liquidate their company.  In some cases actually trying to avoid liquidation by selling the company.  Reputational damage If you do not pay your creditors you will suffer reputational damage whether you have sold it to another company or liquidated it formally.  You may not be able to get business insurance and your current insurance may not be renewed if you have another company. This is completely untrue.  We liquidate companies all the time and the directors do not have this problem.  They might have issues getting cover if they do it more than once.  Some very riskaverse insurers might turn you down but there are literally thousands out there.  There may be a tiny increase in the premium and you may have to answer a few more questions for the insurers piece of mind.  You won't be eligible for any business finance or loans from banks or other lenders Again this is simply not true.  All banks and lenders recognize there is some risk in running a business and a failure of a start up or a liquidation is not going to be a problem.  It will be if there appears to be a pattern of multiple liquidations though.  Even then it will not have any affect on your personal credit rating.  Company credit scores are totally separate.  You will be disqualified as a director if the company goes into liquidation This is completely wrong. Only if you have been fraudulent or deliberately misled creditors knowing the business is going to fail will you face disqualification or be personally liable for the debts (note that if you have personally guaranteed loans then yes you will be liable ). This worry tends to make directors “freeze up” and take no action out of sheer panic.  You can’t be a director again if the company fails Completely wrong again (see above).  You may not be able to obtain another VAT registration. If you do, HMRC may require you to pay a significant deposit. If you owe the HMRC a substantial amount of VAT then they will wind the company up with a petition, so it will be liquidated anyway. The former directors during the time the money was owed will be on their radar.  It is better to do a voluntary liquidation in these circumstances.  Yes you may need to provide a deposit in a new company but probably only if you owed them substantial sums.  Large companies and local authorities wont grant tenders to directors of liquidated companies What is actually being said here is that large companies won't give tenders to insolvent companies!  Well of course they wouldn't.  A previous liquidation by a director will not preclude them.  There is no mention of any such exclusions in the The Public Contracts Regulations 2015.  The NHS will not employ anyone who has liquidated a company Err no.The one area where liquidating a company can have some personal issues is if you are going to work in very sensitive finance areas and perhaps national security.  This is mainly because they worry that a creditor could apply pressure on you or you could be more easily bribed if you have lost a lot of money in the past.  However, avoiding voluntary liquidation may well result in a compulsory court liquidation process that is likely to lead to even worse outcomes. 

An Insolvency Practitioner (IP) is a professional who is authorised, and licensed, to act in the interests of an insolvent company, partnership or individual.  In respect of a company, they aim to either rescue it or wind it down in a fair manner to maximise the interest of all the creditors according to the law.  They carry out their work in accordance with the Insolvency Act 1986 and the rules of their regulatory authority such as the Insolvency Practitioners Association (IPA),  the ACCA, ICAEW, or the ICAS. Should I appoint an Insolvency Practitioner? Directors are most likely to get in touch with an insolvency practitioner if they are worried about the financial situation of their company.  They may face serious legal threats from suppliers, banks, HMRC, and may even face petitions to wind their company up. It might be that bailiffs have visited the registered office.An insolvency practitioner may also be appointed by the court, where a petition to wind the company up has come from a creditor.  In addition, a secured creditor, such as the bank or factoring company, can appoint an insolvency practitioner as an administrator i.e. put the company into administration resulting in you losing all control.So, it is generally advisable to seek the services of an insolvency practitioner as soon as you are aware that your company is insolvent.  If you are not quite sure if this is the case, then read our Insolvency tests page.  What are the roles of an insolvency practitioner? Liquidator Once a liquidator is officially appointed, they oversee the closing down the business and investigating the circumstances that led to the company’s insolvency.Their main purpose is to convert any remaining assets into cash and pay as many creditors as possible with those funds, hoping to pay dividends too. However, some creditors may not see a return due to liabilities that outweigh the financial worth of the remaining assets. Liquidators ensure creditors are all treated in accordance with their legal rights.A liquidators role involves a variety of tasks: arranging meetings, completing paperwork and investigating the directors’ conduct. Administrator When a company goes into administration, the insolvency practitioner effectively runs the company for the benefit of the creditors.  They will try and sell the business assets. If there are no takers, then they will wind down the company.  Administration’s primary aim is rescue and it needs to have a better result than liquidation for the creditors as it is a complex and more costly process. Nominee and Supervisor of a company voluntary arrangement. A company voluntary arrangement (CVA) is an insolvency process that allows a company to pay off a proportion of its debts over an extended period of 3-5 years.  The arrangement must be agreed by the creditors.  The role of the IP as a nominee is to ensure that the proposed CVA is “fit, fair and feasible.  As such they need to be satisfied that the company has a reasonable prospect of rescue and can afford the payments to the creditors.  As supervisor, the insolvency practitioner is responsible for collecting the payments from the company to pay back the creditors, known as a dividend.  If the company cannot pay, then the supervisor will wind up the company as liquidator. What are the qualifications needed to be an insolvency practitioner? An insolvency practitioner will have passed the Joint Insolvency Examination Board (JIEB) exams which are known to be very tough.  Due to the financial nature of insolvency most practitioners will have extensive experience as an accountant and may well be qualified either by the ACCA, ACA and CIMA.  One particular reason why insolvency practitioners need to be well qualified is that it should be remembered that an IP acts in their personal capacity when dealing with insolvent companies.  They are not protected by the company they work for.  When taking appointments they have to take out an insurance policy to protect creditors from losing out if they are negligent or criminal. How can I find an insolvency practitioner? Most insolvency practitioners work at a firm such as us KSA Group.  Be wary that many people offering advice to insolvent companies are not actually licensed to take on appointments but will just take some fees and then you will end up having to appoint one anyway or you firm will be wound up by the court.  To check if someone is actually licensed then you can search thehttps://insolvency-practitioners.org.uk/ipa-search-members/https://www.icas.com/find-a-cahttps://www.gov.uk/find-an-insolvency-practitioner

A preferential (or preferred) creditor refers to a creditor who has the right to payment before others. The priority of secured, preferential, and unsecured creditors is set out in the Insolvency Act 1986.  Preferential creditors are prioritised before unsecured creditors in a liquidation but below creditors with a fixed charge on assets such as property.