Company liquidation and bankruptcy. Is there a difference?

Company liquidation and bankruptcy. Is there a difference?

Company liquidation and Bankruptcy both refer to essentially the same thing but from the standpoint of a company and an individual respectively and it’s true to say there are some significant differences.

Company Liquidation Services would deal primarily with a company liquidation.

In the case of an individual, bankruptcy proceedings can be instigated by the person themselves or by one of their creditors, provided the amount owed is in excess of £5000. A petition is made at either the County or High Court and following deliberation the order will be made where appropriate.

Once an order has been made the case will be handled by the trustee in bankruptcy (often the Official Receiver) who will mount an investigation into the debtor’s affairs and take control of and protect their assets. The debtors’ bank accounts will be frozen and they will be interviewed by the Official Receiver who will then inform their creditors about the bankruptcy.

For an individual, most debts are included however there are a few notable exceptions. These include amongst others; Magistrates Court fines, Maintenance and Child Support payments and student loans.

The trustee will take control of all of the assets including cash and any salary will be paid to them. They will sell anything of value to raise cash to pay creditors but will release a small amount for living expenses. Some assets may not be seized such as household items and hand tools needed for work.

The bankruptcy will usually last for a year and at the end of the time the included debts will often have been paid off during the period or will be written off. Debts that have not been included will still need to be paid however. The debtor may also be required to make payments under an Income Payments Agreement (IPA).

There will be some lasting effects of the bankruptcy proceedings for the individual concerned. As previously mentioned debts not included in the bankruptcy will still be live and need to be paid. Also the action will be included on the debtors’ credit file for six years and this will make obtaining finance harder and more expensive.

It is true to say that there may be lasting career effects too as some occupations will be barred to bankrupts such as that of insolvency practitioner or solicitor. Some employers will require the individual to disclose their bankruptcy.

For the company in liquidation the situation operates in a similar way but the effects are quite different. The company entity itself does not exist after the liquidation process unlike the individual!

Whilst there is a court order process appointing a liquidator their job is simply to raise as much money as they can for creditors and then close the company down.  The process can be started for a debt of as little as £750 and should this remain unpaid after the issuing of a Statutory Demand then the Court may consider a petition.

Part of the work of the liquidator will be to investigate, in the same way as they would do for an individual, the dealings of the business and to assess the value of the assets and what the best course of action will be and unlike in the case of an individual all debts are included.

The liquidator (who will again be a licenced insolvency practitioner), will collect up all of the assets and either work on a trade sale to a competitor or will sell items individually or through an auction.  In this way it is possible that the trading company can live on in the form of a new business even though the legal entity is wound up. The value released by this process will be returned to creditors as a dividend.

Once the procedure is complete the liquidator will wind up the company and it will cease to exist. The most significant difference between Bankruptcy and Liquidation is that once the process is ended then no further payments are made from the company whereas the individual may face a longer series of repayments.

Although the bankruptcy process for an individual will typically last for a year, business liquidation can take much longer especially in the case of complex groups.

Whilst the company may not exist the former directors will still have the reputational damage of being involved with a company that has failed and, should they have acted illegally may face action that could result in their disqualification.

The twin areas of Bankruptcy and Insolvency are complex and understanding the best way forward is often difficult and time consuming. It is always best to contact a professional who is experienced in the area and talk over the options available, whether you are an individual or a company looking for a way to manage your debts.

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