If you are thinking about closing your business you may unsure about what the best way of doing this is. However, it is vitally important that you make the best decision based on your company’s financial situation. If your business is insolvent it is strongly advised that you place your company into liquidation. Not only does this ensure you adhere to your duties as a director by prioritising the interests of your creditors, it also makes sure your creditors are paid fairly and preference payments are avoided. Furthermore, by liquidating your insolvent company you may make yourself eligible to claim director redundancy.
The term ‘liquidation’ refers to a formal process which can be used to close down a company. In the case of an insolvent company, the process is known as a Creditors’ Voluntary Liquidation (CVL) and must be overseen by a licensed insolvency practitioner. As part of this process the insolvency practitioner will sell all of the company’s assets and use these proceeds to pay outstanding creditors according to a defined payment hierarchy. This means that secured creditors will be paid first, followed by preferential creditors (such as employees), with unsecured creditors at the back of the queue. Shareholders will only receive any money owed should there be any left after all other creditors have been paid in full; in the majority of insolvent liquidations there is simply not enough money to allow for this.
As previously stated, a company can only be formally liquidated under the instruction of a licensed insolvency practitioner. The good news is that once you instruct an insolvency practitioner to liquidate your company, the process is typically quite straightforward and there is not much for you, as a director, to do from this point on. This is because the insolvency practitioner takes charge of the company from the point of the CVL being entered into. They will be responsible for collating the company’s assets, having them independently valued, and then selling them for the highest price possible. Once this has been done, the liquidator will then distribute the proceeds amongst outstanding creditors and take the necessary steps to officially close the company down.
After the company has been liquidated and its name removed from the register at Companies House, it will cease to exist. Consequently any debts which couldn’t be cleared during the liquidation will be wiped out and creditors will not be able to chase you personally for them. This is because the debts of a limited company belong to the company and not its directors or shareholders. Therefore if a company no longer exists, it cannot be asked for payment. The only exception to this rule is if you personally guaranteed any of the company’s debts. Any debts underwritten with a personal guarantee will not be wiped out following the company’s liquidation; the responsibility for paying these will pass over to you.
If you liquidate your insolvent company through a formal procedure such as a CVL, you may be entitled to claim director redundancy. Director redundancy works in largely the same way as employee redundancy, with the amount you are able to claim calculated based on your length of service, age, and salary. Director redundancy can only be claimed if your company is insolvent and if you close it down through a formal liquidation procedure. Be warned that dissolving or striking off your company yourself will exclude you from being able to claim.
If you are considering liquidating your company, speak to the experts at Redundancy Claims UK to see whether you could be entitled to director redundancy. If you are, our expert advisers can talk you through the process and guide you through from start to finish. Call our dedicated team today on 0800 063 9261 to learn more or to start your claim.