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Insolvent – If the worst should happen, what happens next?
There’s never a perfect time to consider closing your insolvent Limited company, something into which you’ve almost certainly ploughed considerable, effort, time, finances and passion. Lines Henry can help you make that decision and help you through what comes next.
Unfortunately, one of the responsibilities of a Director is to consider ceasing to trade if your company becomes insolvent.
If you find yourself in a situation where your company cannot pay its creditors, or would not be able to raise sufficient funds through the sale of assets to settle its debts or both, then your company could be considered insolvent.
You may wish to try and save your company, you may wish to let it go, or you may have a decision imposed on your externally. Whatever the situation, having a licensed Insolvency Practitioner on your side will give you a better outcome.
Going into Administration
Administration is an attempt to see if an insolvent company can be saved through restructuring. Either the company itself, or a court, can decide if administration is the best option and once this route is chosen, an insolvency practitioner can be instructed to carry it out. Typically the IP will assess the company’s situation, decide if restructuring is likely to work and if so carry this out, or if not, arrange the sale of assets, payment of creditors and ultimate closure of the business.
Being Struck off The Register of Companies
Striking a company off the register at Companies House is something that can only be applied for once a business has ceased trading for at least three months. The application itself is relatively cheap and once completed will see your company name removed from the register of companies and ceasing to exist along with any debts it might owe. Part of the procedure is to send a copy of the application to anyone who might be interested – especially creditors. Anyone with a legitimate interest in doing so can block the striking off action, so if your company owes significant sums, it’s unlikely you’ll be able to close your company this way. It’s also worth bearing in mind that while a company’s debts disappear once striking off has been successfully completed, debts which the Director personally guaranteed do not and as such remain payable.
Creditors’ Voluntary Liquidation
After passing a special resolution to voluntarily wind up the company, a licensed insolvency practitioner is appointed as a liquidator to action the process of closing the company. The interests of the company directors and shareholders are considered a lower priority than the interests of the company’s creditors and any funds raised by the sale of assets will be paid to the liquidator who will pay the costs of liquidation before sharing the balance out amongst the creditors. As with other methods of closing a business, Directors who’ve given personal guarantees will still be personally liable for them.
Winding Up Order
Also known as ‘Compulsory Liquidation’, usually a creditor or less often, a director, can petition the court to have a company closed. If the judge agrees at the subsequent hearing that this is appropriate, a winding-up order will be made which will lead to the company being liquidated (it’s assets being sold) and used first to pay the costs of liquidation and then any remaining funds will be shared amongst creditors.
Get an expert on your side
If you’re feeling like your company finances aren’t going the way you’d like, then don’t keep things to yourself any longer. Get in touch with us and ask about Business Insolvency & Recovery for a free consultation. The sooner you get in touch, the sooner we can start helping and the sooner you’ll feel better.