There’s a few guides available that will explain the different types of liquidation along with the process itself – including our own Business Shut Down page.
We’re not going to repeat that information here but to give you some practical advice and tips to consider alongside the company liquidation process – also known as Creditors Voluntary Liquidation or CVL.
Is Liquidation the end for my business, or can I start again?
If you’ve decided that the company can’t continue in its current form then your next most important decision is whether the business should shut down and disappear completely or whether it should start over.
The legal framework for business enterprise within England & Wales is highly entrepreneurial in spirit so barring some important caveats that we’ll look at later, it’s not only legal but in many ways preferable for owners and managers of companies entering liquidation to set up another business.
If you’re deciding on whether or not to transfer the assets to a new company, as a minimum you should take into account the following:-
- The ability of the business to trade profitably
It’s important to consider if the new business has a fair chance of success moving forward – after all, you’re placing the current company into liquidation so it’s only fair to ask the question. Creating cash flow and profit & loss forecasts would help clarify this question.
- The cost of buying back the assets of the liquidated company
This needs to be discussed in advance of liquidating the company so you have a clear idea whether it’s affordable or not. As liquidators, we’re generally amenable to allowing payment to be stretched over a period of time to make it more affordable as long as it’s fair value for the assets.
What else should you consider?
Once you’ve made a decision as to whether you’re going to close the business completely or transfer the assets to a new company, there are some additional factors to consider.
Personal Guarantees in Liquidation
If you’ve given any personal guarantees to either banks, suppliers or other creditors then these will “crystalise” or become payable once the company enters liquidation. You will need to reach an agreement on how to deal with these separately from the liquidation process.
There are several ways of approaching it and we have been previously successful in helping clients to negotiate reductions in their personal guarantees. Read our blog on Personal Guarantees for more details.
Bank Accounts in Liquidation
Once the liquidation process has begun, your company bank accounts will be frozen and become the property of the liquidator.
If you’ve set up a new company, you’ll need to ensure that you can also have a new bank account. As the previous company has already entered liquidation, it can be difficult to get new banking facilities but we’re happy to point you in the right direction of banks that can assist you.
Property Leases in Liquidation
Once a company officially enters liquidation, the liquidator can either “disclaim” the property lease, which basically means giving it up, or they can transfer it to a new company.
You’ll need to consider whether you intend to trade on from your existing premises, and if necessary, negotiate with the landlord in advance of liquidation for a new lease. The liquidator should be able to assist you with this process .
Antecedent actions from the liquidator
If your actions as a director of a company that’s been liquidated warrant it then the liquidator can take action against you and/or other directors personally for the recovery of certain funds.
It could also impact on your ability to launch a new venture. Read our blog on Potential Problems for Directors for more information on this.
Before you reach this stage you should talk to us so we can review the company’s finances before it’s placed into liquidation. We can spot this and other issues that could be problematic and spell out the ramifications of these prior to liquidation.
Effect of liquidation on Employees
Whether you intend to set up a new business or close the existing company down, if you have employees then they need to be treated professionally and sensitively.
We can assist you with the redundancy process and meet with your staff if required to explain what happens. Depending on the timing, your staff might be able to make a claim against the National Insurance Fund for redundancy pay, unpaid wages or pay in lieu of notice or holiday pay. Read our blog on Employees in Liquidation rates for more details including the statutory rates.
Director Liquidation Redundancy claims
You might not know but if you place your company into liquidation as a Director you may also be entitled to make a redundancy claim using the same calculations as your employees.
These extra funds can be useful to help get you back on your feet again at a time you need it most. Some directors have used these funds to pay one-off settlements against personal guarantees, pay the liquidation fee, settle personal debts or use it as working capital for their new business moving forward.
Re-use of liquidated company’s name (or similar)
It’s an offence for a director to set up a company with the same or a similar name after liquidation unless a strict process is followed.
A common mistake some Directors fall foul of, when some careful pre-planning could have allowed them to re-use a name similar to the liquidated company without any legal ramifications.
You need to understand that if you commit this offence then you could be held personally liable for all of your new company’s debts should it enter liquidation. You’d also be considerably more likely to be subject to Disqualification Proceedings and a fine from the Insolvency Service.
The Insolvency Rules do allow some exceptions to the re-use of liquidated names. If it’s your intention for the new company to have a similar name then you need to discuss this with the liquidator and they’ll be able to work with you to ensure that any exceptions have been properly applied.
Purchase of liquidated assets
Once you’ve decided that you want to have another try with a new business then you’ll probably want to purchase the assets of your old company back from the liquidator.
They will need to ensure that any asset sale is at fair value (according to Statement of Practice 16) so it’s important that you begin negotiations with them as soon as possible in the process.
If you’re unable to pay for the assets in full on completion then it might be possible to spread the cost of payments over a period of months although it’s likely that the liquidator would need to take a personal guarantee for security.
Regarding the liquidated company’s debtor book, the liquidator will realise these for the benefit of any liquidation creditors.
In some circumstances, it might make sense for you to assist the liquidator in the collection of these and payment for acting as an agent can be agreed in these circumstances.
How Robson Scott can help you
We’re both a business turnaround specialist and an Insolvency Practice..
As turnaround specialists, we can liaise with you and your accountants to provide assistance in preparing a business plan for moving any new company forward.
We also take appointments as liquidators of companies, and prior to undertaking formal liquidation, will be happy to meet with you to discuss any of the above or other concerns or questions you might have.
If any post-liquidation action has been taken against you, for matters such as preferences or overdrawn loan accounts, we can help defend these actions
Regardless of whether a company liquidation is the end of a business or a new beginning, you’ll need to appoint a licensed insolvency practitioner to act as liquidator.
When looking to appoint a liquidator, make sure that they’re not only advising you on the liquidation, but providing assistance with all of the other very important considerations that can turn a simple process into an expensive and complicated one if it’s not done properly.