What are the benefits of liquidation?
It could be argued that the key to living the best life is knowing how to to handle endings well.
Don’t believe us? The writer of The Sopranos still gets hate mail from devoted fans who never accepted the creators vision and version for the end. Scientific studies have been done looking into how to better accept the various endings in life and move beyond them to a better and brighter alternative.
So it is with businesses.
Some, such as Thomas Cook, accrue so much debt that there’s no realistic alternative for them to carry on as a going concern.
Whole industries have seen changes to consumer behaviour or the law which means that their whole business model and livelihood vanishes overnight.
And others still, while successful and profitable, realise they’ve taken their business as far as they can or decide that there’s more to life than making coffee, no matter how many awards they win, and have an orderly closure to allow them to move onto their next adventure.
Liquidation is a tried and trusted method of bringing a business to an orderly conclusion.
There are many advantages to following the path to a formal closure:
- Debts are written off
If a company is voluntarily liquidated – once a company has been dissolved and remaining funds allocated to creditors – any remaining debts are then written off.
- Legal action ceases or can’t be bought
All outstanding legal action brought against a company that’s being liquidated is ceased and no new actions can be instigated.
- Administration costs are generally low
The cost of liquidation can vary depending on the circumstances of each individual case but it’s a one-off payment and usually a lot less than the amount of debt a company owes.
- Staff, and in many cases, the company’s directors can claim redundancy pay
Letting staff go is never easy or enjoyable but one benefit of liquidation is that your former employees, including directors paid through PAYE, are legally allowed to claim redundancy pay, holiday pay and wage arrears through the Redundancy Payments Office.
- Leases are voided
Leases on buildings and equipment along with any hire purchase agreements are usually terminated once a company is liquidated. If there’s any arrears to be claimed then the company will claim from the insolvency practitioners as all the other creditors will.
- Insolvency Practitioner communicates with creditors on your behalf
Another benefit of liquidation is that you won’t have to speak to any creditors or anybody else asking for repayments or additional funds. All communications with your creditors will be done by the Insolvency Practitioner on your behalf.
- Directors have more control and input in the process
There’s several types of liquidation but a Creditors Voluntary Liquidation (CVL) to give it its full name is the voluntary process where the directors and shareholders of a company decide to place it in liquidation.
While it’s a formal legal process overseen by a licenced insolvency practitioner, it still gives directors more control and say over the course of the process including avoiding winding-up petitions or frozen bank accounts.
- Can legally pay less tax
If a company with one member – a contractor for example – or a similar close company decides to close and is otherwise solvent and debt-free then a Members Voluntary Liquidation (MVL) could be the best method to release cash and assets in the most tax efficient way such as through entrepreneur’s relief.
- Avoid going to court
Part of the insolvency practitioners job is to look into the circumstances surrounding the closure of the company – especially the conduct of directors to see if their actions helped exacerbate matters.
If they did and were found to have acted against stakeholders interests then The Insolvency Service could take them to court and have the company wound up. If the liquidation is voluntary then this won’t be a concern.
- Piece of mind
Possibly the best thing about the liquidation process is that it’s a final end to the business.
It draws a line that lets you move onto the next chapter of your life – either to begin a new project or take a break and decide what is next. It allows a company to be closed down in a lawful, orderly and proper way.
Chris Horner, Insolvency Director of Business Rescue Expert said: “The funny thing about endings is that nobody is really surprised by them.
“Everyone involved knows on some level, even deep down, that things have come to a natural conclusion. There’s always a mixture of emotions that accompany endings but by far the most common is relief.
“Not just relief that things have ended, but also that the waiting is over and everyone can finally move on.”
One of our team of expert advisors will set up a free initial consultation where we can help you plan a roadmap for what you’d like to see happen with the company and how we can get you there.