The 4 Most Common Liquidation Myths

The 4 Most Common Liquidation Myths

When a company enters into liquidation, all that’s happening on a basic level is that assets are being sold and turned into cash to settle creditor debt. It’s usually the very last option that a business considers, but can also be a boon to many struggling businesses; removing the stress and worry of debt. Unfortunately, to those first time players in business, there are a few stubborn myths which seem to perpetuate about the process of liquidation. Here are just a few of them.

I can liquidate my own company, right?

This is a very common thought but it’s also a potentially damaging one. Though you might think you’re being sensible in attempting to liquidate your own assets in the wake of insolvency, this process cannot be carried out by a company director. There are two types of liquidation – Members’ Voluntary Liquidation and Compulsory Liquidation. The former is instigated by the shareholders of a company in light of insolvency, and the other instigated by creditors who have gone unpaid and put in a formal request. Both of these practices have to be led by an appointed liquidation practitioner by law to ensure a smooth process. This is usually an official receiver of The Court.

After liquidation, I can’t start another company…

This couldn’t be further from the truth! Company liquidation is not necessarily a negative process. It’s a tidy, organised and perfectly respectable way to wrap up a business that isn’t doing to well. While you may be hard on yourself for letting you business ‘fail’, it’s important to remember that this happens a lot in business, and many directors go on to learn from their mistakes and be extremely successful. In some instances, under strict conditions, you may even be allowed to carry on the name of your business after liquidation – what’s known as a ‘phoenix company’.

I’m going be hassled and chased by creditors…

Liquidation can be a difficult time for you and your employees, even when it’s handled properly, but if any creditors attempted to pursue you directly during the process they’d actually be breaking the law. ¬†Furthermore, once liquidation has finished and you assets have been divided up, and that creditor has received their share, they’re no longer allowed to chase up any remaining debt. That is all they’re able to receive, and the insolvency practitioner has signed off on it. You’re now free to start a new business and move on with your work.

I’m going to be banned or disqualified from being a director

Liquidation itself does not negatively affect your ability to direct a company. Many successful directors have, in the past, had to liquidate companies and close businesses. The only instance you may receive a ban or disqualification is if you do not follow the proper procedure when your business becomes insolvent. It’s your duty to recognise this and contact a liquidation professional to get things moving. Once they’re appointed, an investigation will ensue which will review your conduct, and make sure that you acted in the interests of your shareholders and creditors. After liquidation, providing you were honest and up front, you’re free to start another business!

Company Liquidation Services are pleased to announce that their friends and partners, Sochall Smith, have gone live with a brand new website. Sochall Smith are chartered accountants with offices in Leeds, Sheffield and Middlesbrough, and with over 75 years of experience they can help streamline your business and put it on the map. Visit to find out more. 

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