Company Liquidation – The Facts

Company Liquidation – The Facts

The world is currently faced with a global financial crisis. Many big and small companies are having a difficult time with many going bankrupt and facing liquidation. If you are the director of a company that is showing signs of trouble you should not ignore it. When your stocks start to fall you face the risk of severely damaging your business so making precautions a head of time is important. Hold regular meetings with shareholders, the board of directors and most importantly the creditors. Remember that if your company is making losses and is on the verge of closing down, the courts and the government will first look into the concerns of the creditors before deciding on liquidation.

When your company cannot pay its debts it is considered insolvent by the law. It is important then to take quick action instead of delaying the process. You can try to settle the necessary credits or forward a company voluntary agreement to the creditors. The company director should immediately contact the creditors and ask for liquidation. Once the company is put into liquidation the business should stop trading immediately. If the business still continues to trade it is called ‘wrongful trading’. It should be kept in mind that the directors do not take further credit in such situations. Seek the advice of a licensed insolvency practitioner immediately who can answer your questions on company liquidation. Until the liquidator is appointed the existing director continues to head the company.

The role of the director here is important. They can purchase the company from the liquidator on their personal credit since the company is a separate entity than the individual. However the liquidator is not obligated to forward the reins of the company to the ex-director if his offer is not deemed acceptable. On the positive side the ex-director is not obligated to pay the existing debts of the company to form the new entity. The director does not automatically cease to be a director of the company unless the company is bankrupt. However if the director acts in a way that violates the code of conduct or borrows money illegally they can be held liable to pay the debts of the ex-company.

If any unpaid due of the Inland Revenue is remaining then the directors or the board of directors can be forced to pay under the 1998 Social Security Act. The official can also force other senior employees to pay the money. The director’s loan account can be regarded as a remuneration and can be subject to tax.

The most common form of liquidation is called creditors’ voluntary liquidation. This is instigated by the director with the help of the creditors. If the directors and shareholders do not agree on the issue of the liquidation then the interest of the creditors must be kept in mind at all times. The courts will have to take the decision on the company’s behalf. But for a unanimous decision at least 75% attendance of the shareholders are required. The liquidator after analysing the finance of the company prepares the D Report. The future decision of the company is based on this report. Lines Henry are specialists in company liquidation and are a licensed insolvency practitioners.