When Would I Want to Close My Company via a Liquidation?
While directors may see their company entering liquidation as an indicator of failure, that isn’t necessarily the case, and there can be situations where a liquidation may be the best course of action for your company. This could be down to a level of debt that would be difficult to recover from, or if your company is solvent and you want to close it through a more efficient process than a dissolution.
Is liquidation your company’s only option?
Liquidation isn’t necessarily your company’s only debt-relief option if it’s insolvent. Depending on your situation, including the level of debt in the company, who its creditors are, and whether the core business model is viable, another insolvency-relief procedure may be more suitable.
For example, a Company Voluntary Arrangement (CVA) could allow the company to repay a portion of its unsecured debts while it continues trading, potentially retaining goodwill with customers and suppliers.
Administration may also be a viable option if the company could be rescued as a going concern, it owns property or assets that could be distributed to creditors, or if the process would achieve a better result than closing without first going through it.
You should consult a licensed and regulated insolvency practitioner before deciding to pursue these processes. Only they can carry these out.
When would liquidation be the best option?
If your company is insolvent, liquidation may be the best option when there is little to no chance of the company bouncing back from insolvency, or when creditor pressure is mounting to the point where trading becomes impossible.
While it may be the last thing you would want to do as a director, liquidation can offer several benefits:
- Your company’s unsecured debts are written off.
- Allows you to close the company and walk away.
- Stops further legal action against the company, with the liquidator dealing with creditors.
- Reduces the risk of wrongful trading accusations.
As a director, you’re fulfilling your obligation to act in your company’s and creditors’ best interests by closing when it is the best way forward. Afterwards, you’re free to walk away from the company and start afresh.
If your company is solvent, liquidation could be a fast, tax-efficient, and relatively low-cost process.
A solvent Members Voluntary Liquidation (MVL) can be a more efficient closure option than dissolving the company. It can be useful when:
- You and/or your fellow directors are looking to retire without a successor.
- The company is undergoing a merger, with the old one needing to close afterwards.
- A change of career, or just not wanting to run the company anymore.
- You wish to close the company and take advantage of Business Asset Disposal Relief.
A liquidation’s costs can vary depending on several factors, including the level of debt, the number of creditors, and the value of any assets. Speak to a licensed insolvency practitioner for more bespoke advice.
To summarise
Liquidation isn’t always tied to the failure of a company. Solvent companies can enter an MVL for a more tax-efficient closure than through dissolution. Similarly, insolvent companies may not have to liquidate depending on their circumstances. However, if your company has debts that it’s unlikely to recover from or creditor pressure is making trading increasingly difficult, then liquidation may be the best way forward for your company. Speak to a licensed insolvency practitioner to discuss your specific situation.
