Limited Company Insolvency: Frequently Asked Questions

Limited company insolvency explained

Facing insolvency can be a confusing and an extremely stressful time. Here, we have broken down some of the frequently asked questions about limited company insolvency and what you need to do.

Is my company insolvent?

There are two definitions of insolvent:

• The company cannot pay its debts when they are due
• Its liabilities are greater than its assets

Once a director realises their firm is insolvent, they are under legal obligation to stop trading immediately.

They would either need to recover the business (find out more about this here), or commence insolvency proceedings which we’ve outlined below.

If you suspect that your company is insolvent, we advise that you seek professional help immediately.

 

How much does it cost to close a company?

The costs of closing down a company will vary from as little as a few hundred pounds up to several thousand pounds. Simply put, the cost will rise the larger and more complex the business and its affairs are.

The best way to ascertain the cost of shutting down your company will be to get a quote. We will look over your details and send you a free, no obligation quote.

 

Winding up my company – am I putting myself in personal risk?

If you are the director of a Limited company, you are likely to have no personal liability whatsoever, and will be free to go on to act as directors of new or previously existing companies.

However, there are some exceptions:

• If you have personally guaranteed any of your debts they will need to be dealt with by you personally, whether or not you remain director of the company they relate to.
• If your business continues to trade when you are aware that it is insolvent, you are likely to be accused of wrongful or fraudulent trading. This may result in personal liability of the entirety of your business debts. This legislation was put in place to protect creditors from lending money to companies that have no way of paying it back.

If you are worried about your personal liability when faced with insolvency, don’t hesitate to call us on 0800 975 0380 for some free, confidential advice.

 

What is liquidation?

A Creditor’s Voluntary Liquidation (CVL) is a legal process which winds up an insolvent limited company.

The process is initiated by the business’ directors, by meeting with their shareholders and creditors to agree to place the company into liquidation.

A Liquidator must be appointed, who will deal with the formalities of the liquidation process. Once the procedure has been completed, the company will cease to exist and will be struck off the register at Companies House.

Here at Forbes Burton we can advise and help with every step of the liquidation process if this is what your company requires, making the journey as easy and stress-free as possible.

 

What can my employees claim?

In the case of a liquidation, company employees are able to make a claim from the RPS (Redundancy Payment Service) for unpaid wages, holiday pay, notice pay and redundancy payments. Find out more about redundancy claims.

If directors are employees of the business, they can also apply for a claim with the RPS.

If the company is wound up in any way other than a liquidation, no claims to the RPS can be made.

 

Can I buy back my company assets?

If you are looking for a simple answer, yes.

There is nothing to stop directors (or connecting parties) from making offers on any of the Company assets including stock, furniture, equipment, vehicle or websites.

It needs to be a fair price, however; assets would need to be independently priced by an third party and sold.

 

Can I start a new company after the current one has been wound up?

Again, the short answer to this one is yes.

Closing a company, even with debts, does not prevent its director from becoming a director of a new or existing business in the future.

Not being aware of the proper processes can damage your reputation somewhat, however; repeated business failures could be looked upon negatively.

 

Can I reuse my company’s name?

Yes, if certain conditions are met.

A director would need to purchase the assets of the Company and the rights to the name and then proceed with the appropriate notification of the intention to use a similar name.

We would recommend that any director thinking of continuing to trade under a similar name seek independent legal advice. We work with some trusted solicitors who have experience in this area and we would be happy to provide contact details for anyone who needs their advice.

 

Can I liquidate a limited liability partnership (LLP)?

Yes, this is possible, much in the same way as a Limited Company through a CVL (Creditor’s Voluntary Liquidation). Whilst there are some small differences between the processes, they are largely similar.

Some examples of the differences include Designated Members as opposed to Directors and Determinations as opposed to Resolutions.

If you are concerned about the solvency of your LLP feel free to give us a ring for a friendly chat about your options.

 

What are the types of corporate insolvency?

In addition to liquidation, there are other forms of corporate insolvency. These include:

• Administration – this procedure aims to benefit all creditors. The company’s assets are protected by the government, preventing creditors from taking action against the business while the rescue procedures are put into place. The appointed administrator may consider trying to find a buyer for the company.
• Administrative receivership – this process is initiated by a floating charge holder (most often this will be a bank). They will appoint a receiver to sell the company’s assets for as much as possible in order to pay off the Company debt.
• Company Voluntary Arrangement – this is legally regulated, binding agreement between a company and its creditors. In this case, the firm’s creditors will be invited to accept reduced or rescheduled debt repayment to allow the company to continue trading.

The number of options can be overwhelming and difficult to understand which will suit your Company. If you would like to discuss your options, please do not hesitate to contact us on 0800 975 0380.

 

Do I need to appoint a licensed insolvency practitioner (IP)?

If you would like to voluntarily liquidate your company, the answer is yes – they are the only people that can deal with liquidation processes. There are certain processes, however, that can be carried out without the need to appoint a licensed liquidator.

We would advise that you seek independent advice before going ahead with any type of winding up process, and particularly, speaking to the IP before they are appointed so that you will know what to expect.

 

Will liquidating my company affect my credit rating?

As long as you have not personally guaranteed any of your Limited Company’s debts, the answer is likely to be not at all – a Company is a separate legal entity to its directors or shareholders.

If you are concerned about your personal finances, feel free to contact us. You could also read our blog post on Personal Liability.

 

Do I need to get some advice?

Advice gained from the right people at the right time can be invaluable and will be essential if your company is facing financial difficulty.

With 20 years of experience in the vast majority of UK business sectors, our team understands the stress that directors are faced with when their business is struggling.

We would be happy to work with you to find a solution personalised for your business. Don’t hesitate to contact us for some free advice now; 0800 975 0380.