Liquidation explained: director’s Q&As

To help you understand some of the practical implications of liquidation, we have compiled a list of our responses to some of the questions directors most commonly ask us here.


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How much does liquidation cost?

Can I purchase the company’s assets?
Can I reuse the company’s name?
Can I stay in the company’s existing premises?
What happens with the company’s bank account?
Can I repay certain suppliers before liquidation?
What happens to my staff in a liquidation?
Can a director claim redundancy pay in liquidation?
What happens with any Personal Guarantees in liquidation?
Does liquidation affect my personal credit rating?
Can I repay money owed to myself, family or friends prior to liquidation?
What happens with any vehicles on contract hire?
What happens at the liquidation Creditors Meeting?

directors-q&A-liquidationHow much does liquidation cost?

Placing a company into liquidation costs between £2,500 and £7,000, depending on how many businesses you owe money to and what assets you need to liquidate.  If you would like a free, no obligation online quote for your business click here.

Can I purchase the company’s assets?

Yes.  The company’s assets will be valued by independent agents (appointed by us) who will oversee their sale.  They will ensure that the right price is agreed for the assets, taking account of age, condition and saleability.

Sometimes it might be possible to pay for assets on deferred terms.  Although this provides a lower upfront payment, it can be more expensive overall and normally requires security such as a personal guarantee.

Can I reuse the company’s name?

Yes.  However, you need to purchase the company’s ‘goodwill’ in order to do so, and there are some strict legal requirements to follow.  Read more about reusing a company name.

Can I stay in the company’s existing premises?

Unless there is strong demand from tenants for your type of property, we find that most landlords are amenable.  As long as you’re able to agree a new lease with the landlord, then you should be able to stay in the premises.

What happens with the company’s bank account?

When the notices for the creditors meeting are advertised in the London Gazette, the company’s bank account will be frozen.  If there is a credit balance, this will be held as an asset for the liquidator to deal with.  Any amount overdrawn will be a claim within the liquidation.

If there is an overdrawn bank balance and you have given a personal guarantee, the bank will look to recover the balance from you personally (see below).

Can I repay certain suppliers before liquidation?

Don’t use company funds to pay anyone just prior to liquidation unless you have the proposed liquidator’s approval.  The liquidator will only approve if it is for the overall benefit of the creditors (such as for completing an order).  If you do pay a debt from company funds in the build up to liquidation, you may be held personally liable for that amount (this is called preference).

If you are buying the business, and want to maintain a relationship with a supplier, there is nothing wrong with your new business offering to pay part of the old company debt.  In our experience, this a good way of keeping key relationships alive whilst avoiding preference liability.

What happens to my staff in a liquidation?

Liquidation ultimately means the end of the business, so any staff remaining will be made redundant.  The staff will be able to make a claim for any unpaid earnings from the National Insurance Fund.

For more information, visit our information page redundancy in liquidation‘, which explains employer and employee rights, and how to make a claim.

Can a director claim redundancy pay in liquidation?

Yes.  If you have historically received salary, you may be able to claim unpaid wages from the National Insurance Fund.  Read our blog on director’s redundancy in liquidation here.

What happens with any Personal Guarantees in liquidation?

Liquidation will crystalise any personal guarantees, meaning that you will now potentially become liable.  However, most banks and suppliers are willing to organise sensible repayment plans, as long as you keep good communication with them. Find out more about Personal Guarantees in insolvency here.

Does liquidation affect my personal credit rating?

No.  Liquidation does not appear on personal credit referencing searches.

Can I repay money owed to myself, family or friends prior to liquidation?

If you use company funds to repay yourself, or connected parties, you may be held personally liable for the payments.

What happens with any vehicles on contract hire?

The contract hire agreement will end once the company enters liquidation, and any shortfall will be a claim in the liquidations.  As long as you have not given a personal guarantee, then you will not be personally liable for this.

If you wish to continue using the vehicles for your new business, then you can seek the consent of the lease company to transfer or set up new agreements.

‘Meeting of Creditors’: what happens at the liquidation creditors meeting?

The proposed liquidator will hold a shareholders meeting, just prior to the creditors meeting, in which the shareholders vote to place the company into liquidation.  In practical terms, shareholders normally vote by proxy, but can also attend by telephone / remotely if they wish.

Once the shareholders’ meeting concludes, the liquidator moves on to the creditors’ meeting.  Any creditors wishing to attend can do so by video link or phone.

Prior to the meeting, the liquidator and the company directors will have prepared a directors report, which they will put before the meeting.  The report explains the circumstances of the liquidation along with the company’s financial position (called a ‘Statement of Affairs’).  Creditors are able to ask the director questions, after which the liquidator moves onto the votes for the meeting, reviewing the received proxies and the overall votes before concluding the meeting.  Meetings usually last between 30-90 minutes.

Our creditors’ meetings are held remotely and at least one company director must attend by video link, or by phone.  Find out more about creditors’ meetings.

directors-questions-liquidation

Have we answered all your questions?  If we have missed anything, get in touch with one of our business rescue experts.