Business Rescue vs Liquidation: What are Your Options?

If you’re feeling the pinch of the last few years, be it through the pandemic, Brexit, the cost of living or other factors, your company may well be struggling.

Have no fear, plenty of others are in the same boat.

There’s a lot to be said for taking a step back and seeking out what options are open to you. Would business rescue or restructuring work for you, or does liquidation look like the only option?

From liquidation, through which a company is liquidated and dissolved meaning it will cease to trade and operate, to options for business rescue such as a Company Voluntary Arrangement or administration which aim to turn a business around, you need to know what is best for your business.

Let’s take a look in detail below:

Business rescue options

When there is a case that a company could be rescued and brought back from the brink, then there are several options open to you as a company director. Here are just a few:

Company voluntary arrangement (CVA)

For insolvent companies looking for business rescue, a Company Voluntary Agreement can be the way to recover and move on.

With a CVA, a licensed Insolvency Practitioner is appointed to put forward a formal proposal to creditors to help find a way to turn a business around and restore profitability.

Here, both you as a director and your creditors come to a formal agreement where the creditors will accept a sum of money as a way of settlement towards the debts they are owed. 75% of your creditors must agree for this to progress.

If this is an option that you go for, you can continue the company and still act as a director.

Read – How Can a Company Voluntary Arrangement Clear Debt?

Administration

One of your other options as an insolvent business looking to be rescued is to enter into administration.

This is an option that aims to take control of the company’s assets and repay owed money to creditors.

When your company goes into administration, they are given protection against any legal action. An Insolvency Practitioner is appointed as the administrator and whilst they are overseeing the case, no other party can apply to wind-up the company.

Read – An Overview of Limited Company Administration

Fast Track Company Rescue Plan

Fast-track company rescue plans are used in cases where a company is struggling to pay its day-to-day bills, but with some help could well become profitable again. They are used as a more cost effective, informal solution to a Company Voluntary Arrangement (CVA).

In simple terms, all the company debt is moved into one manageable monthly payment so that the company can continue trading whilst making affordable payments to its creditors. And, because it is an informal process it is usually very quick to set up and get running, as long as their is no serious action being taken by any of the creditors.

This plan gives the company breathing space to be able recover and become viable once again.

Read – How Fast Track Company Rescue Plans Can be Used to Save Businesses

Business Restructuring

Restructuring is a way of changing a business with the goal of recovering it or to make it more profitable.

When it is in difficulty, restructuring the business often involves setting up a new company with the same directors and shareholders.

The new company then takes over the operations of the old company, while the old company is closed down and its debt is settled.

This is done when the business itself is still viable, but the company itself is not.

Read –  The Benefits Of Restructuring Your Business

Liquidation options

Liquidation is a way of formally closing down a company. As a legal insolvency process, a licensed Insolvency Practitioner must be appointed to carry this out.

Through the liquidation process, your company’s assets are sold and any realisation is distributed to the company’s creditors. Next, the business is dissolved meaning it is struck-off by the registrar of companies.

There are two main types of insolvent liquidation:

Compulsory liquidation

This is where a company is forced to close by creditors who are unable to recover debts they are owed of more than £750.

You as the business owner will have almost no control over the process if this is what happens.

Creditors owed money can issue a winding-up petition to the court. Once a winding-up petition has been issued, it will be served to the company and advertised in The Gazette 7 working days later. Next, the court will then either approve or dismiss it.

If successful, courts can force you into liquidation which will be carried out by a licensed Insolvency Practitioner appointed by the court.

This is the most serious form of liquidation. If you are threatened with compulsory liquidation, it is always best to act quickly and look into what options are available. This can also mean voluntarily liquidating your company if needs be.

Creditors’ voluntary liquidation (CVL)

The other main form of liquidation is a Creditors Voluntary Liquidation. Unlike compulsory liquidation, voluntary liquidation is a completely voluntary process that is initiated by your company directors and shareholders.

Creditors’ Voluntary Liquidation is entered into by a director that chooses to voluntarily end the business and liquidate all assets. This is an option open only to insolvent companies and is a good way for you as a director to take control and close the business before it is forced into compulsory liquidation.

One of the advantages of a CVL is that it shows that you as a company director have taken tangible and real steps towards meeting your obligations when it comes to debt and paying back creditors money they are owed.

By entering into this process, you are showing that you acknowledge your legal duties to creditors, this then protects any risk of being seen as taking part in wrongful trading.

You will have more options available to you as a director in the future if you choose to act. It also gives you the chance to open other businesses in the future.

In both circumstances, an Insolvency Practitioner will conduct an investigation into your company’s transactions.

If any evidence of wrongdoing is uncovered, it will be reported to the Insolvency Service and could lead to fines or a disqualification from being a director again. If this is the case, as a director, you can become personally liable for any debt.

Need to speak to someone?

If your company is struggling with unmanageable debts, poor cash flow, or an uncertain future, you are not alone.

We speak to company directors struggling with the same issues as you every single day, and we are here to give you the help and guidance you need.

Call our team for free, no-obligation advice today on 0800 975 0380 or book a free consultation