If your company is failing or is on the decline, you may think that liquidation is the only option for you. However, there are a few other routes you can take to rescue or dissolve your company.
At The Insolvency Experts, we can help to guide your insolvent, or solvent, business through formal insolvency processes and provide you with expert advice and financial guidance.
What is Company Liquidation?
Company Liquidation is the formal process of closing a limited company. The assets are sold and the affairs are managed to a close. Following this, the company is dissolved from the official register.
It is the process your company may look to follow if you have cash flow issues on a regular basis, and your creditors are threatening to take enforcement action against you.
Can a company be dissolved without liquidation?
Yes, this is the usual method of striking off a company which has ceased trading and is now dormant.
You can dissolve your company without liquidating by simply completing a DS01 form, which can be found on Companies House. All you need to do is submit the form and wait two months to ensure no one lodges an objection.
Company Voluntary Arrangement (CVA)
A Company Voluntary Arrangement (CVA) is an agreement with creditors which allows the business to pay off its debts over a certain period of time. A CVA is an insolvency process that allows for a company to be rescued, rather than the total sale of business and its assets.
The business will continue to operate and trade as usual as it will be protected from creditors taking any action against it via a moratorium. Creditors are typically in favour of businesses entering a CVA as opposed to a Liquidation as this option may result in little to no repayments of what is owed to them.
In times of financial difficulty, the option of a CVA moratorium is provided to give the company’s management time to put a rescue plan into place to the company’s creditors.
A company will have an initial 20 day period of protection from legal enforcement or actions. Companies should consider obtaining a moratorium whilst pursuing a CVA.
Administrative receivership is a remedy available to secured creditors of a limited company, who have floating charges over the company’s assets, as well as either a fixed or floating security over these assets.
An administrative receiver is an insolvency practitioner who is appointed to a company to take control of its assets, such as selling the assets. This appointment causes the floating objects to “crystallise”, meaning that the company can no longer deal with the property which concerns the floating charge.
Company Administration is the process in which an insolvency practitioner is appointed to restructure a business, with the aim of either turning it back into a profitable company, being sold and reviewed or being wound up and liquidated.
Administration may be the best option if your business is financially distressed, but has underlying value.
What is the difference between company administration and an administrative receivership?
Company administration works to protect companies from their creditors, whereas administrative receivership is initiated by creditors who believe the business cannot pay its debts.
Company directors cannot place their own company into receivership.
From a company perspective, there are very few benefits to receivership. The business is unlikely to be rescued, and the assets may be sold on at a reduced price to recoup as much as possible for the creditors.
Directors may be investigated and may also lose employment too. However, if the receiver can act fast, and the directors are not found guilty of misconduct, receivership can solve their difficult financial position and walk away.
However, administration gives more options for the company. The appointed administrator will take control of the business and create a recovery plan, including paying off debts and looking for ways to save the business.
Company Dissolution is a way of “striking off” a company and removing it from the Companies House register. Once the dissolution process is complete, the business is legally and publicly recognised as a dissolved company.
Companies can dissolve if:
- They are no longer trading;
- It is a subsidiary company and not needed anymore, or;
- The directors are looking to retire and no one will take over the company.
Creditors’ Voluntary Liquidation (CVL)
A Creditors’ Voluntary Liquidation is led by the directors and and shareholders of a business. This means you can choose the liquidator you wish to work with.
A CVL enables businesses to be wound down and closed down properly, with all known creditors being consulted by the insolvency practitioner prior to the company entering liquidation.
Is liquidation better than administration?
Choosing between liquidation and administration all depends on the current financial situation of your business. In some cases, liquidation may be the best choice for your business, especially if there is no return.
If your company is experiencing financial difficulties and you are unsure about your next steps, we strongly advise you seek assistance from a licensed insolvency practitioner.
How do I know what the best formal insolvency procedure is for my business?
At The Insolvency Experts, we know how stressful it can be as a business owner to start a formal insolvency procedure, which is why we can help you find the right option for your business.
Our expert team will take the time to understand your individual situation and provide you with all the support you need through the insolvency process.