The Disadvantages of Liquidating Your Limited Company

Is liquidation the best solution for a failing business?  Maybe, but watch out as there are several disadvantages of liquidating your limited company.

Making the decision to liquidate your company is never easy, but sometimes necessary, so it’s important to know all the facts before you make that decision.  Once the wheels are in motion there’s no going back, and you need to know to expect.

Apart from the obvious disadvantage of losing your business, there are many other factors to consider before liquidating – it could cost you more than you think!

1.    The inspector will call

Once you have started the process of liquidation there will be an investigation into the conduct of the directors over the last 3 years.

This is to check that the business has been managed properly and that the directors have always acted in the best interests of the company.

If the investigation shows any abnormalities, further enquiries will be made.  This could result in directors being disqualified or held liable for the company debt.

2.    “I can guarantee…”

If these words have been uttered to any of your creditors they may be taken quite literally.

You may not realise it, but a personal guarantee could end up costing you far more than you thought.

Creditors are well within their rights to take legal action against an individual if personal guarantees have been made, written or verbal.

3.    Beware of the overdraft

The director’s overdraft must be repaid and the directors are personally responsible for current account debts, payable to the company.

The way to look at it is that the overdraft is an outstanding amount owed to the company and this money needs to be recovered as all of the company’s outstanding invoices need to be paid.

4.    No! Not that!

All, and I mean ALL of the company’s assets will be sold.  The liquidators need to raise as much cash from anything they can to pay their fees as well as pay back as much as possible to the company’s creditors.

Nothing is safe, and trying to hide assets could result in further legal action being taken against you!

5.    Goodbye, farewell

All employees, no matter how hard they have worked or how loyal they have been, will be made redundant by the liquidators.

This can cause a huge amount of bad feeling and sever good relationships.

It could mean they will be reluctant to work with you in the future and not be hesitant in letting people know that.

Liquidation is difficult process to go through, both personally and professionally.

Furthermore, if it happens to you once too often you may be blacklisted from being able to be a director of subsequent companies in the future.

Next steps

I hope this article has shown you some of the disadvantages of liquidating your limited company, however, there are advantages to liquidation too.

If your considering closing your company and are unsure which way to turn, just give us a call on for free on 0800 975 0380.

One of our friendly advisers would be happy to talk through your options with you.