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Cash flow problems can be a concern for any company, especially if you put your business at risk of not being able to pay its debts. If you notice these problems early, you can implement new strategies to quickly solve these challenges and avoid losses. If these problems cannot be solved and your business cannot pay the debt when it is due, the company is considered bankrupt.
At this stage, the available options will be very limited. While there are a number of company rescue solutions that can help you get your business back in the early stages of financial trouble, there are some situations where the best option may be to go into voluntary liquidation.
Although many company directors view liquidation as the worst option, it can actually be one of the easiest ways to end a financial struggle. This provides relief, avoids legal ramifications if your business continues to trade and helps avoid the most serious situations that could arise if creditors decide to take legal action against you. In some cases, creditors may apply for a Winding Up Petition, which may result in your business going into liquidation. It is much better to take responsibility for this decision than to leave it in someone else’s hands.
Here, experts in company insolvency advice explain the voluntary liquidation process and how, if you act quickly, professional advice can lead to recovery for your business.
How does a company go into voluntary liquidation?
In order to make the right decision and move forward with confidence, it is essential that you carefully evaluate all of your options when your business is experiencing problems with cash flow or corporate debt. If you think voluntary liquidation may be the right option for your business, contact a company rescue expert or insolvency practitioner for advice. You can evaluate the situation and explain your options, because in some cases, you can make alternative payment arrangements or use a different strategy to get your business back.
Once you realize that voluntary liquidation is the only option and you have secured an agreement from the other company’s directors, the first step is to educate an insolvency practitioner. Once the insolvency practitioner takes over, the business ceases to trade and in most cases all employees are out of a job. From this point, the directors have a legal obligation to avoid any action that reduces the value of the business. However, the formal liquidation process does not begin until a meeting of creditors is called and the resolutions of the meeting are passed.
What happens after an insolvency practitioner is appointed?
The first responsibility of an Insolvency Practitioner is to gather all company information. They begin by preparing a directors’ report, which includes extracts from the company’s accounts, a list of creditors, information on shareholders from the statutory register and details of all existing company assets (including physical assets, shares, work in progress and any liabilities). This report is created for the benefit of creditors to inform them of the company’s current financial conditions and the reasons why the company is going into liquidation.
The insolvency practitioner invites the business’s creditors to a meeting of creditors, during which they review the directors’ report, vote on decisions to appoint a liquidator, usually the insolvency practitioner who coordinated the process from the start.
If the company is placed into liquidation, the appointed liquidator will begin to realize the company’s assets for the benefit of the company’s creditors. At this stage, company directors are free to move and start another business, if they want – in most cases there will be no legal consequences for the directors.
If your business is struggling with debts or cash flow challenges, consult an bankruptcy professional as soon as possible. This will identify any company rescue solutions that may be available and show you the way through the company debt problem. This will not only help you plan your future and business, but also give you the peace of mind you need when making tough decisions.
By Robert Cooksey, Director, Company Insolvency Counsel
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