Liquidating a Company that is in Debt

When a business has a lot of debt company liquidation is often a solution, liquidating a company means using the company assets to pay off debts before closing the company down. As a licensed insolvency practitioner it is Lines Henry’s responsibility to ensure debts are paid back.

Company Liquidation

When a company goes into liquidation it could be for one of 3 reasons;

Creditors Voluntary Liquidation

In some cases the company has gotten into so much debt that the Directors and Shareholders decide the only way to pay off these debts is by entering into creditors voluntary liquidation.

Compulsory Liquidation

If you owe money to a creditor and do not pay them back or arrange a payment plan they may initiate a compulsory winding up order from the High court, if they have a claim this will order you to go into compulsory liquidation to pay back the debts.

Members Voluntary Liquidation

Not all Liquidation processes mean you are in debt, in some cases you may not have any business debts but still want to wind up the company, this is members voluntary Liquidation.

Insolvency Practitioner

No matter what your reason for going into Liquidation you still need to employ a licensed Insolvency Practitioner to help you wind down the company and oversee repayments of any debts. The insolvency practitioner will take over the company affairs so it is no longer under control of the directors. They will then make sure all debts owed are paid back by gathering up the assets.

Not All Debts Are Created Equally

When it comes to the repayment of debts you will find that not all debts are created equally and there is a hierarchy to who needs to be paid back first from the assets when liquidating a company. The priority of repayments are as follows;

  • Secured creditors (such as banks) with a fixed charge over assets
  • Insolvency fees and charges
  • Preferential creditors (for example employees and pension schemes)
  • Secured creditors with a floating charge
  • Unsecured creditors (such as HMRC)
  • Shareholders

When liquidating a company it should not affect your personal finances, unless you have made personal guarantees on loans or the directors loan is in credit, once your company goes into liquidation you will no longer have control of your company including making payments to creditors.If you are found guilty or wrongful or fraudulent trading you may need to pay specific debts. If you are confused or think you will need to liquidate your company then get in touch with Lines Henry on 0800 012 6649 for confidential advice.