While several businesses are looking forward to the upcoming summer with excitement as it’s their busiest and most profitable time, many others aren’t. 

Holidays are coming up so staff might be unavailable and several firms could be running with fewer workers – meaning the remaining staff have to work harder for the business to stand still, tiring them out in the process. 

Others who are already in a sticky financial situation might not be able to bank on a sunny recovery and could even see things getting worse, with little chance that they might ever get better without action. 

We’ve written several times before about why it can be beneficial for directors to close their business down through a creditors voluntary liquidation but we’ve never looked at what could happen if they didn’t. 

Until today. 

“If you feel like you’ve got a close call between quitting and persevering, it’s likely that quitting is the better choice.” – Annie Duke, author of “Quit: The Power of Knowing When to Walk Away”

There are several consequences for directors to consider if they continue to operate a business that is either failing or is likely to have no reasonable chance of recovery or return to viability. 

  • Increasing debt

If a business is already struggling to meet all of its debt obligations when they fall due then continuing to add to them might be considered counterintuitive. 

Increasing an already unsustainable debt burden makes the financial situation worse and means it will be even more difficult to recover from. 

  • Legal action from creditors

The threat of statutory demands and winding up petitions from creditors will only increase the more creditors there are and the greater amount of money they are owed. 

Receiving either of these is a serious matter that should be dealt with immediately by either repaying the debt in full or getting some professional advice to discuss how the debt can be cleared.  

Otherwise the solution that will be forced on the business by a court will be a compulsory liquidation

  • Personal liability

Depending on the circumstances, directors can become personally liable for company debts.  For instance, if they take on finance or debt if trading while insolvent.  

A compulsory report into director’s actions has to be submitted to the Insolvency Service in every compulsory or creditors voluntary liquidation. Making wrong decisions could have serious personal financial consequences.

  • Loss of control

Every director has to have a level of control within the business but if a company’s financial situation deteriorates further then they could lose this. Creditors bringing legal actions could force the issue and other circumstances could mean more risk of not having an orderly and controlled wind down of the business. 

This would be a less favourable result for directors and creditors alike so the best option is to maintain an element of control by appointing an insolvency practitioner to oversee a voluntary liquidation.

Every director will admit almost straight away, or when they have had some time to consider it, that uncertainty is one of the biggest obstacles to running a business – whether it is doing well or struggling. 

Fighting financial fires is made so much more difficult when there is a risk of the element of control being removed which can lead to wrong decisions being taken, making it even harder to recover. 

Getting some professional advice as early as possible is the best way of keeping not just control but the ability to make critical decisions that can have a real impact. 

Closing the business through a liquidation might be the right option but depending on the circumstances, an administration or a company voluntary arrangement could also an effective option. 

Get in touch with us today to arrange a free initial consultation with one of our team of advisors.  Then you can take control of the direction of your business knowing all the possible outcomes available.