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Advantages of company liquidation over dissolution

If your business is facing financial decline and you’re not sure how to proceed, you may be considering closure in order to minimise losses. This is generally achieved using a liquidation process called Creditors’ Voluntary Liquidation (CVL), which writes off any unpaid debts at the end of the process, and is administered by a licensed insolvency practitioner (IP).

Company Liquidation

Some directors mistakenly choose to use the company dissolution process, however, knowing that money is still owed to creditors. This is often because the procedure is relatively straightforward and inexpensive, but the full implications are not always understood.

Why company dissolution isn't suitable for insolvent businesses

Company dissolution is not available for companies subject to insolvency proceedings - such as a winding-up petition - and is likely to be objected to by creditors (such as HMRC) if there are outstanding liabilities. 

Even if no creditors object at the time of application, a company can subsequently be restored to the register if one or more of its creditors object further down the line. Company restoration following dissolution can result in additional liability and filing penalties in some instances, and the company is treated as if dissolution hadn’t occurred. In contrast, once a company has undergone a formal liquidation process and is closed down, it is far less likely to be restored.

Entitlement to director redundancy

By entering into a Creditors’ Voluntary Liquidation, you may be eligible to receive redundancy pay in the same way as your members of staff. This can relieve the considerable financial pressure placed on the business, yourself, and other directors, by covering the liquidation costs and potentially leaving some left over for you.

Company dissolution offers no such entitlement to redundancy, and can, in fact, result in serious financial issues for you on a personal level if you’re held accountable for the company’s debt at a later date.

Debts are written off

When a company is liquidated using a CVL, business assets are sold for the benefit of creditors, but any debts remaining are written off. This provides closure in more than one sense – on a practical and financial level, but also on an emotional one for directors.

Redundancy Claims UK can help to establish your eligibility for director redundancy, and guide you through the whole process from start to finish. Contact our team today to learn if you qualify, and how much you may be entitled to claim.

Many directors don't consider themselves to meet the criteria and don't claim when they have a legitimate right to.

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