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Advantages And Disadvantages Of Liquidation

The quick answer

Liquidation is a very useful way of closing a limited company that is no longer able to trade due to its debts. It should not normally be used where the company is solvent, or when the business in the limited company can be restructured or saved (administration or a CVA is usually a better option if this is the case). 

The main disadvantage to liquidation is you will lose your company.

In more detail

Advantages Of Liquidating A Business

  • It brings matters to an end for an insolvent business struggling to cope, in a legal and organised manner.
  • If the business is under pressure from creditors, the business can be closed and all creditors will be dealt with by the appointed insolvency practitioner like us.
  • It removes the responsibility from the business owners and directors.
  • You will no longer need to file annual accounts, VAT accounts or tax returns once the liquidation has been completed.
  • Employees will be able to make a claim for any unpaid salary, holiday pay, notice pay and redundancy from the government fund. However, this is subject to some limits.
  • The directors can find other employment or start another business.
  • The responsibility of the directors to deal with creditors can be removed, although any creditors which have been guaranteed personally will be unaffected.
  • Any county court judgements or debt recovery pressure will be lifted, not including any personal debts of the directors.
  • HM Revenue & Customs will no longer chase the directors for PAYE or VAT.

disadvantages to LIQUIDATION

Liquidation also has its disadvantages, including;

  • The business will no longer be able to trade and will likely be restricted from using the same or similar company name again in the future.
  • Any employees will lose their jobs and so will the directors.
  • Shareholders may have to repay illegal dividends (not paid out of profit).
  • Overdrawn directors loan accounts will have to repaid.
  • Suppliers and creditors will lose money.
  • Any business reputation, trading licences or other valuable assets will be lost.
  • Administration may be quicker and give a better outcome for creditors.
  • Any accumulated losses for tax purposes will be lost and can not be recovered.
  • Any personally guaranteed debts (for example to Funding Circle) will be called in.
  • A business liquidation does not usually affect the credit score of the company directors, however the information will continue to be available on Companies House.
  • You can make furlough claims.

WHY DO BUSINESSES GO INTO LIQUIDATION?

  • If the business cannot pay the debts as they fall due.
  • Business liabilities exceed total assets.
  • The business is making losses and you do not think you can turn the situation around.
  • The directors are finding it hard to cope with the stress and pressure of trading.
  • The directors are worried that trading is in decline and you will be liable for wrongful trading if you carry on.
  • The directors would like someone else to deal with the creditors and all their claims.

Employees owed redundancy, unpaid salary, holiday pay and notice pay can claim this from the Government Redundancy Payments Service. Directors can usually claim this as well.

A WORD OF ADVICE

If you need help seek good legal advice from a qualified and experienced solicitor who specialises in insolvency or a Licensed Insolvency Practitioner like our firm. Avoid unlicensed debt advisors whose incentive may not necessarily be to help you.

More questions in this section

We have just worked with Kirks to complete the closure of our company. Everything went smoothly and professionally. I would recommend this firm and the staff who were very very helpful and quickly finalised everything. Thank you Kirks.
Carol Hill
David Kirk - Kirks Insolvency Call Back

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