Article

David Koller
David Koller 15 August 2018
Categories B2B

Pros and Cons Of Company Liquidation

There comes a point when your company falls into debt, or under too much pressure from the creditors, when it becomes obvious that you cannot manage your way out. This is the stage when one of the most viable options seems to be to liquidate your enterprise. It’s good to know that there are ways for you to make a fresh start as a brand new director of a whole new company.

However, company liquidation comes with its own set of pros and cons. In this article, we are going to discuss what those are, and help you determine the best course of action.

Pros

On one hand, company liquidation definitely comes with some advantages, especially when it comes to your current situation.

Best to do it out of your own choice

It is far better for the liquidation to be your own choice than to be forced to do it by another party. When a creditor gets involved, everything becomes a lot more complicated and chaotic. When you are the one that decides what to do, you have the ability to control the situation and prepare yourself for what is to come much better. The fact is that company liquidation is a very nerve-racking procedure.

Debt gets written off

In case that your company has found itself in the midst of the situation where the competition has surpassed its efforts, and the market shifted in such a way that reflected negatively on its processes, then it most probably will no longer be able to repay the creditors. The good thing about voluntary liquidation is that the pending debts get written off, and you are able to shift your focus to something new.

No restructuring and redundancy costs

When a company gets liquidated, the person that was assigned for this job is the one that makes its staff redundant. Company assets will be used in the form of redundancy payments. If there have been any long-lasting accountabilities, such as leases, they are dismissed by the liquidator. Basically, you, as a director, don’t have to pay any of these costs unless you have made some personal guarantees yourself.

Cons

On the other hand, there are disadvantages when it comes to company liquidation which might make you want to think about other solutions.

Liability to pay personal guarantees

As we have previously mentioned, if there are no personal guarantees, then you won’t have to pay the costs. However, if you have made some promises, you are going to be held liable for the debts and will have no other way out. Basically, a creditor that has a personal guarantee from you will be able to take you to court if you don’t pay.

There is going to be an investigation

Be certain that the liquidator is going to investigate your company. This means that they will go through your entire history and finances. This basically means that you have to be completely transparent with them and provide them with anything that they ask for – which is generally pretty much everything related to your company. If you are not prepared for this, it will certainly feel invasive. 

You cannot retain business assets

Once your company is in the process of liquidation, the liquidator will take up the task of selling your company’s assets. On one hand, they will do this so that you have the money to cover their fee, while on the other hand, they will also try to repay the creditors, at least partially. This means that you will most probably lose the majority of your assets and will not be able to use them for a future business. However, if you opted for a Pre-pack solution, you will be in a better position.

In summation

What you should be certain of is that company liquidation is in no way a pleasant and simple experience. Everyone who is associated with you will feel the consequences of the process. Still, if you make sure that you approach everything properly or with the help of an expert, it doesn’t have to be a hellish process to go through.

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