Do I Need to Liquidate my Company if it Can’t Pay its Debts?

Should you liquidate your company

One of the questions we often get asked is “do I need to liquidate my company?” The primary reason (among others) to choose a liquidation is that it’s an effective method to deal with an insolvent company.

This is because when the company is liquidated, all its liabilities and obligations come to an end, and in the vast majority of cases, company debts do not need to be repaid.

What is a creditors’ voluntary liquidation?

If your company is insolvent and you decide to close your company via liquidation, a licensed insolvency practitioner (IP, or liquidator) will take over the company and deal with its creditors. This is called a creditors’ voluntary liquidation.

They will liquidate company assets (sell them and distribute the proceeds among creditors) and complete all other necessary processes to close the company fully and finally.

There are very few cases in which you will ever need to speak to creditors again once a liquidator has been appointed. A couple of case where you may need to are;

• If any amount is personally guaranteed by yourself
• If you are found guilty of fraudulent or wrongful trading, in which case you could be found personally liable

As well as being lifted of this responsibility, you will no longer need to file tax, employer or VAT returns to HMRC.

If you have any employees that are owed redundancies, putting the company into liquidation means that the government will pay these amounts, as well as notice pay and any arrears of pay that they are entitled to.

My company is insolvent. Should I liquidate it?

If you are aware that your company cannot repay its creditors, there must be a very good reason (which ultimately benefits the creditors) if you are to carry on trading.

This is because if the company builds further debts, which will be impossible to repay, you could be found personally liable for them. Therefore, yes one of your best options is to liquidate to stop any further debt increases.

Entering your company into liquidation can be a huge relief because the weight is somewhat off your shoulders, however, you will still need to help the liquidator to fulfil his or her role by providing them with the information that they request.

Having said this, the time that you will need to put into the process will be very little after these first bits of information have been submitted.

Does your company qualify for liquidation?

See if your company qualifies for liquidation. Take our quick online liquidation test now →

What’s the catch?

We’ve been through the advantages of going through a liquidation process, but what about the disadvantages? The high cost of liquidation (usually between £3,000 – £7,000) does put many people off.

However, many directors are not aware that they could be entitled to a redundancy payment when their company goes into liquidation; the average pay-out is £9,000 and this can be used towards paying the liquidation fees.

Read more on this and establish whether you would be entitled to make a redundancy claim here.

Not sure what to do?

If you would you like to know more about liquidating your company you can download our detailed liquidation guide, or just give us a quick call on 0800 975 0380. We’ll be happy to answer any questions you have.

You can also find out more information about how we can help you with a liquidation.