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What is the procedure for, and the effects of, company liquidation?

Question

I am one of several directors within a well-known private company in our area, having traded for 33 years. The company is now in dire straits and I can see it heading towards liquidation in the next few months at this rate. We have around 60 staff and a few have been with us since the very beginning.

The liquidation process concerns me as I don’t want the news getting out too soon and causing alarm to our staff. I want the process to be as discreet as possible. What are the immediate effects of liquidation and how will our staff be looked after?

Answer

Unfortunately, company liquidation is a public process because by law advertisements have to be made at various stages of the process in the London Gazette. However, the good news is that by the time the notices are advertised the business will have ceased to trade.

In circumstances where a director has identified that a company cannot avoid insolvent liquidation, his duties change. No longer is his duty to the company/its members, instead the primary obligation is to the company’s creditors.

If a director continues to trade a company after realising it will not be able to avoid insolvent liquidation (or in circumstances where he should have realised this) and the deficit to creditors increases, the director can be ordered to pay money personally to the company for the benefit of its creditors.

Accordingly, if you think that insolvent liquidation is simply a matter of when, not if, then it is imperative that you seek advice from a licensed insolvency practitioner to minimise the risk of any action being taken against you personally in the future.  

Once the company enters liquidation the staff should not suffer as they will be able to claim for any arrears of salary, accrued but untaken holiday pay, notice pay and any redundancy payment due (subject to statutory weekly earnings limits) from the Redundancy Payments Office (“RPO”).

Each member of staff will be required to complete a simple form providing details of their employment and what they are claiming for. The liquidator will assist the staff as required and the RPO usually make payment between 4-8 weeks after claims are submitted, although there is no guarantee as to the timescale as it is dependent on workloads.

Advice You Can Trust

Insolvency Practitioners Association Institute of Chartered Accountants in England and Wales R3: Association of Business Recovery Professionals ICAEW Business Advice Service Turnaround Management Association ACCA (the Association of Chartered Certified Accountants) ICAS | The Institute of Chartered Accountants of Scotland
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