Why Appoint a Liquidator?

30 Second Insolvency Test:

1. Is the company delaying payments to either the Inland Revenue Department or other creditors?
2. Are the company assets worth less than all of its debts?
3. Have any creditors threatened legal action against the company?

If you have answered “yes”  to one or more of these questions, then the  company may be insolvent, and the directors need to act as soon as possible.

We can offer you confidential advice on your options about what to do next.

Often the decision to put a company into liquidation comes after an extended period of uncertainty, high emotion, stress and anxiety. It often comes as a relief when the decision is made to formally liquidate the company and enables the directors to step back from the stresses of the situation.

The advantages of the appointment of an independent person to manage the financial and commercial matters of an insolvent company include:

1. Reduced emotion for the directors and management, as the control is passed to the liquidator.
2. The liquidator can communicate with all the employees and creditors and deal with all of their questions and concerns.
3. There is a reduced perception from suppliers and creditors as to creditor payment bias. All liquidator payments are made according to a strict priority order - therefore there is no creditor or process uncertainty.
4. Liquidations are a clearly defined process that will conclude in the shortest reasonable timeframe.
5. Liquidators may have greater presence to collect outstanding debts and resolve past issues.
6. Liquidators can support the directors with independent reporting and information when dealing with liability claims, for example: unpaid PAYE with the Inland Revenue Department.
7. A formal liquidation will close off the company and significantly reduce the possibility of future claims.
8. If directors of insolvent company continue to trade, they can become personally liable for the debts. All directors need to be aware of the statutory duty they owe to the company not to trade recklessly and of their potential personal liability for the debts of the company if they do so. There are now several recent cases where the courts have taken a hard line against directors.

The relevant provision is section 135 of the Companies Act 1993:

A director of a company must not:

1. Agreed to the business of the company be carried on in a manner likely to create a substantial risk of serious loss to the company’s creditors; or
2. Cause or allow the business of the company to be carried on in a manner likely to create a substantial risk of serious loss to the company’s creditors.

Three Good Reason to Liquidate a Solvent Company:

Capital Dividends

A voluntary liquidation has always been a dominant reason for liquidating a solvent company.  As part of the liquidation process, non-related party capital gains can be paid out tax-free. This liquidation process can save tax.

Generational Change

Client structures, succession planning and the needs of the next generation may not be in sink with the  previous generation. Therefore, the tax effective split of assets via a voluntary liquidation allows the next generation to pursue their own visions as their respective families expand with different needs and horizons.

Risk Management

Where a company has successfully undertaken an enterprise or development there is invariably the possibility that unforeseen liabilities may appear years later. Formal liquidation process closes the door to future claims. The door can only be re-opened at considerable expense in limited circumstances and requires an application to the High Court.

We suggest that advice is sought early, to enable the company to have more possible options.