Liquidation

Is liquidation a good idea?

People tend to think of liquidation as a last resort. While it may be the end of a company, it doesn’t have to be a wholly negative experience. It can be favourable if you are looking for an end to legal action being taken against your company. Comparing the cost of shutting the business down may also see a much lower figure than the current level of debt.

Please note that it should not be viewed as an easy way out of debt. Liquidation is viewed as a serious measure in most regards unless looking at Members’ Voluntary Liquidation. There is also the issue of helping staff claim redundancy pay via the redundancy payments office (RPO) if it is seen that liquidation can’t cover pay adequately.

What puts a business in liquidation?

A business can be put into liquidation either by a creditor through a Winding Up Petition (a form of compulsory liquidation), or by company directors through voluntary liquidation.

A Winding Up Petition (WUP) occurs when a creditor files a petition for monies owed in the courts as a result of a company not paying the debt after formal demands have been made. While rare, a WUP is a very serious action to take as it is viewed as a last resort for the creditor. It requires immediate legal advice from a practitioner for a response, as ignoring the petition is a serious offence.

Voluntary liquidation can occur one of two ways:

1. Creditors Voluntary Liquidation, sought when it is clear a business has financial problems or is close to corporate insolvency
2. Members’ Voluntary Liquidation, sought when a business is closing with assets and directors want access to capital through better tax planning

Either form of voluntary liquidation will end with the company liquidating and being struck off the registrar at Companies House.

Are businesses entering liquidation protected?

It depends on the type of liquidation a company is involved with. While voluntary liquidation is proposed within a company, compulsory liquidation is sought from outside sources when a business may have no intention of liquidation.

One knock-on effect of compulsory liquidation is that all assets and bank accounts are frozen. While this can be viewed as a protection, it also impacts how the business is run.

If a business has entered administration with a possible view towards liquidation, the administrator will usually place a moratorium on paying debts.

Does liquidation require a Court Order?

When a business decides they want to enter liquidation voluntarily, they typically do not require a Court Order. If a local court or creditor is aiming to claim on a business, a Court Order would be required.

Are there alternatives to liquidation?

In most cases, liquidation will be the last resort for a company. If you have a business which is in trouble, we recommend looking at our full range of corporate debt solutions, including administration and restructuring.

Getting help with liquidation

Want to talk with a specialist about liquidation? Hillcrest Finance is here to take your calls. Call us right now on 0141 478 0862.