When a company is facing financial difficulties or the loss of its market, the directors may choose liquidation to reduce losses. In this post we examine the best way to go about choosing someone to carry out the process and what you should look for in a liquidator.
A simple liquidation involving the distribution of the remaining cash in a solvent company may be a straightforward Members Voluntary Liquidation (MVL) process but engaging the services of a professional in the sector could both ease the way and provide other more tax efficient ways to close down the business.
In contrast liquidating an insolvent company in a Creditors Voluntary Liquidation (CVL) may not be so easy and there are a large number of requirements that must be satisfied. Using a qualified insolvency practitioner is vital in this situation.
Considering the gravity of the situation how do directors go about identifying a the right person and company to use?
The first step is to speak with a number of prospective companies. People sometimes underestimate the benefit of simple ‘gut instinct’. You will need to be working very closely with the practitioner on a number of sensitive issues and it is extremely important that you get one that you can trust. You need to feel comfortable in their company and be able to raise any issue you want to speak about. It is also important that you are able to feel that they have the necessary experience and background to deal effectively with your case.
Look for a liquidator that has a specialism in your sector. Some practices deal mainly with individuals whilst some specialise in limited companies or PLCs. Do they understand your business and the market that it operates in? Talking to candidates will give you an insight into their sector experience and whether they truly understand your situation.
Having a liquidator close by is often handy as the practicality of arranging meetings is much better and if nothing else it keeps expenses down. Being able to meet with your professional at short notice is very valuable and many of the meeting need to be held in the same locality as the liquidated company so being physically close at hand is helpful.
Look for a liquidator that has experience. Knowing the ‘tricks of the trade’ makes all the difference when dealing with agencies such as HMRC and other professionals appointed to work for creditors. Experience in the process is one of the key things to look for when choosing your liquidator.
You must use a licensed insolvency practitioner for your liquidation but be aware that some firms operate as introducers or middlemen and won’t in fact be your liquidator. When you speak with your prospective practitioner make sure that you are speaking with the person who will actually carry out the duties and not simply a broker who will sell your case to the highest bidder.
When talking to your prospective professionals make sure that they fully understand your case. Analyse whether you feel they are asking sensible and insightful questions. If they have a tendency to be dismissive or get to the matter of fees too quickly then it is possible that you may well end up with a bigger bill later simply because there was information they were not aware of when they took the case. It is much better to go through a thorough discovery process upfront with the prospect of a fee quote that appears higher, than take the cheapest quote only to find out that it gets bumped up later on.
When discussing fees with candidates it is easy to get distracted by the amount of fee quoted. Dig a little deeper. What does the fee actually cover? What add-ons may become payable? When will it be payable? Sometimes going with the cheapest option is not always the best idea.
Possibly the best advice is to look for someone on recommendation. Whilst it may not be the sort of conversation you want to have in an open networking meeting, a discrete word with close friends may provide you with the names of some good quality options. Similarly speaking with your solicitor or accountant could be a way to garner a few high quality possible candidates.
Whilst the liquidation process can be a difficult and time consuming process, having someone on your side that you trust, and that has the necessary qualifications and experience to effectively deal with the issues is vitally important and can make all the difference.