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Liquidating a Company and Starting Again
If you are considering liquidating a company and starting again, there are several issues and complexities that you should consider. This guide will walk you through the process involved with liquidating a company and starting a new company. We help our clients to understand exactly what they should expect when their company has gone into liquidation.
As a general rule, you can be a director of as many companies as you wish to be involved with. That said, it is important that you understand that you have a duty to perform various tasks for each company that you are a director of, and with this in mind, you should always look to minimise the risk of overstretching your resources.
Even if a company you are a director of goes into liquidation, there are various options open to you afterwards, although a few restrictions will apply. It is not uncommon for a company to go into liquidation and close, but for a new legal entity to then be created where the assets of the liquidated company continue.
In these cases, the assets may be acquired from the Liquidator at fair value. If, however, the business as a whole is to be transferred/acquired, then Administration may be more appropriate in the circumstances. This offers a fresh start for the business. It always worth considering all of your available options when looking at liquidating your company and starting again.
What is a Limited Liability Framework?
Liquidating a company and starting again might not seem like an obvious option to many, but it may well be in cases where a company has been set up as a limited liability. In these situations, the directors of the company are protected from the personal liabilities of the company debts as the insolvency process begins.
An exception to this rule is where a director has failed in specific duties, causing company losses, or where a personal guarantee has been given.
There could be countless reasons why a company is facing insolvency and looking at a company liquidation, and in many cases directors will not be at fault for the predicament the company as a whole finds itself in. A limited liability framework protects those directors who have not failed in their obligations and duties, such as where the company has struggled due to unforeseen circumstances and external factors that the directors had no control over.
A company may go into liquidation due to:
- A market decline, where the specific sector is no longer as profitable as when the company was founded
- Large, repeat customers having themselves gone through an insolvency process
- Core customers that accounted for large sections of revenue having gone to competitors
- Unexpected bills that have caused strain on the cash flow of the company
- A struggle to collect money from debtors to your company who are not paying their bills on time
Although it is sometimes of benefit for directors to be able to go through the process of liquidating a company and starting again with a new company that has a similar name and trade, there are some key restrictions for you to be aware of.
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Are there limits on starting a new business after liquidation?
When it comes to legislation relating to liquidating a company and starting again, the insolvency process prohibits any director that has been part of a liquidated company for 12-months prior to the liquidation process from undertaking a number of actions.
Over a period of 5 years post-liquidation, they are unable to:
- Become a director of a company trading under a similar trade and name
- Form, promote or manage a company under a similarly registered name or trading name
Any person found to have breached these restrictions will be fined, or in the most serious cases, be given a prison sentence.
Given that liquidating a company and starting again does hold these certain restrictions, if you do want to reuse the name of the initial company in a new venture you will obviously have to be aware of these.
The idea behind the legislation is that it prevents directors from running up debts, placing a company into liquidation and then following a similar pattern in a new company. Insolvency legislation prevents the reuse of the same name within a new company, but there are a few exceptions to the rule:
- Purchase of Business – If a new company purchases the liquidated company (either in part or whole) a similar name may be used as long as all stakeholders are notified
- Court Allowance – You can make an application to the courts to use a registered or trading name that is similar to the initial company
- Existing Name – In some cases, a company may have been trading under a ‘prohibited’ name in the 12-months in the build-up to the liquidation process beginning. In these instances, the name can be used as part of the new company.
Can I transfer assets to a new company?
It is important to know exactly how to go about transferring assets in a manner which meets all of the relevant guidelines, to ensure that the transaction goes smoothly and isn’t subject to any future penalties. You can transfer assets when liquidating a company and starting again, but only subject to paying fair value for those assets.
An independent valuation will ensure that the new company pays a fair price for all assets that are to be transferred, with funds being passed to the Liquidator for the benefit of the Liquidation estate.
How do I find out more about liquidating a company and starting again?
If you wish to discuss the matter of liquidating a company and starting again in further detail, our expert team are here to help. The Insolvency Experts have a wealth of experience within the industry, assisting countless businesses during tough financial times and helping them to find the ideal financial solution for their circumstances.
You can reach us via phone on 0300 303 8284, or you can email to arrange a consultation, with the team at The Insolvency Experts happy to speak to you in more detail about how we may be able to help. Get in touch with us today.