It is no secret that company liquidation, such as a CVL, has a price tag attached to it. For a company in financial distress meeting this cost may seem out of reach, after all the reason you are looking to liquidate your company is almost certainly due to mounting debts and rapidly dwindling funds. However, it is important to understand how company liquidation works before you write off this option as being unaffordable.
As the name suggests, as part of the liquidation process an insolvency practitioner will be appointed and it will be part of their role to identify all assets belonging to the company. These assets will then be liquidated - meaning they will be sold in order to free up as much money as possible for the benefit of outstanding creditors.
This will include property, machinery, stock, and fixtures and fittings, among others. A portion of the funds generated through this process can be used to pay the liquidation costs, as well as going to servicing the company’s debts. So, while you may not have the money to fund the liquidation in your company bank account as cash, it could well be the case that the costs can be met through the sale of company assets.
You should also consider whether your company is awaiting any money from customers or clients through unpaid invoices. If so, and it is possible to recover this money, this will be classed as an asset of the company and this money can likewise be used to pay for the liquidation.
If your company does not have adequate assets to fund the liquidation process then this is known as a 'no-asset liquidation'.
In the event of a no-asset liquidation, you may need to consider using your personal money to fund the liquidation. While this may not be something you are particularly keen to do, closing down your business on your own terms and with your own choice of insolvency practitioner is often a preferable course of action compared to letting a creditor wind up your company further down the line.
By voluntarily liquidating your company, you remain in control and can ensure the process is initiated at an appropriate time and mitigate the risk of trading while insolvent. This is because waiting for a creditor to wind up your company could be an extremely lengthy process; while you are waiting for this to happen, the company remains active and as its director you retain the legal responsibilities which come with holding this position.
Most people know that employees are entitled to a redundancy payment should the company they work for go under. However, what is less well known is that many company directors are also eligible to claim for redundancy and other statutory entitlements following their company going into liquidation. This is because typically, directors are also classed as employees of their company.
Eligibility for redundancy depends on several factors, including age, length of service, and the amount of weekly hours worked during the time of employment. Claims are made from the National Insurance Fund through the Redundancy Payments Service (RPS) should the company be unable to meet these costs itself. This can be a huge financial lifeline to directors of struggling companies at a time when money is likely to be tight.
Please note this will only be an option if your company is insolvent; director redundancy does not apply in the case of solvent liquidations.
If your business is struggling financially and you are worried about how to fund the closure of your company, contact Begbies Traynor today for free impartial advice from a licensed insolvency practitioner. We will be able to guide you through the liquidation process and advise you on the best way to fund the closure based on your company’s circumstances.
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