When a company ceases trading it can be a difficult time and it may seem that there can be no upside for the directors however there are some advantages to company liquidation.
Protection from accusations of wrongful trading
Wrongful trading is the practice of carrying on the business of the company when there is no reasonable prospect of the creditors of the firm being paid. By putting the company into Voluntary Liquidation the directors can ensure that this won’t happen and that they can show they have acted in the best interest of any creditors. This means that they won’t be investigated personally by the liquidator or the courts in the future.
Personal liability protection
If the company trades wrongfully then it is possible that the court may order that the directors are personally liable for some of the debts run up. By carrying out a properly timed liquidation the directors can ensure that this will not be the case and that they won’t have any personal liability. Having professional advice before and during the process will ensure that the directors don’t take ill-advised decisions that may have unfortunate consequences.
Debt collection action ceases
As the head of the organisation the directors have probably been fielding calls and emails from creditors demanding repayment. Once a company goes into liquidation these will be directed to the liquidator meaning that the directors should immediately start to feel the benefit.
Directors can move on
The company liquidation is happening to the company and not the directors. This means that they can move on and start another business or take a position in another company with no adverse effects.
Avoidance of court procedures
When a business is placed into a compulsory liquidation the court takes control of the process with all of the stress and costs that this entails. A voluntary liquidation means that the directors can ensure this is avoided leaving them clear to move on quickly to new opportunities.
Directors can take over an ailing company
Parts of the company may be perfectly healthy and indeed could flourish under the control of one or more of the original directors. By purchasing these parts of the company out of liquidation the directors can operate the good trading parts of the company in a new ‘phoenix’ company free of any debts that may have been holding back the original firm. It will also mean that if there were disagreements and disharmony in the board, the firm can be reconstituted with only those directors who are focused on taking the business forward.
Whilst it is never an easy thing to see a company go into liquidation it has to be said that it is not all bad and if properly managed and timed it can actually have some significant up sides. Taking professional and qualified advice is vital though and it is important to make the call early on to ensure that you have the right advice at the right time.