When a business enters liquidation it can be a difficult time for directors personally and it may be hard to see any upsides to the situation at all.
The good news is that there some benefits to closing down a company in this way and company liquidation is by no means the end of a director’s business life.
Businesses get into difficulty for all sorts of different reasons and often these may be no fault of the directors concerned so some of these benefits may prove to be of help.
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.
This is without doubt the first and most noticeable effect of the administration and liquidation process and will prove to be a great relief for directors and staff alike.
Protection from accusations of wrongful trading
Insolvency is a time when things need to be done in a certain order and in good time.
One of the key things that directors need to avoid is 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 if they are investigated personally by the liquidator or the courts in the future they can show that they have acted in good faith and within the law.
Personal liability protection
Wrongful trading can lead to directors being surcharged for debts incurred whilst the company was insolvent.
If the company trades wrongfully then it is possible though that the court may order that the directors are indeed 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.
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.
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 and to concentrate on new opportunities.
Directors can move on
The final benefit for directors is that the get to move on with their business life.
Throughout the process it’s important to remember that 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.
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.