In the UK, you never really hear about a business going bankrupt, and with good reason. If you’re searching for regulations or laws on company bankruptcy don’t hold your breath – in the UK a company can never declare itself bankrupt or be made bankrupt in any sense. Bankruptcy applied only to sole traders and individuals, and in rarer cases, members of business partnerships who are unable to pay their debts.
Companies and businesses which are facing unrecoverable debt are regarded as insolvent. One of the most common and effective ways to deal with company insolvency is a creditors voluntary liquidation. In this guide, we’ll be answering some of the big questions regarding company insolvency, liquidation and bankruptcy status.
What is a Creditors Voluntary Liquidation?
Creditors Voluntary Liquidation basically allows a company to wind up in a professional manner, without leaving any debt ‘debris’ or unwanted commitments hanging over it. Those companies who aren’t closed down via a formal company liquidation procedure may experience problems in the short to medium term, particularly if those involved wish to carry on and perhaps start a new business. Liquidating a company will trigger the use of its assets to pay off any remaining debts before it is closed down. A limited company is seen by the law as a company entity, and personal debts are not factored into the evaluation of the business and its success. Not only must this procedure be overseen by a qualified liquidation practitioner in the eyes of the law, but getting help early from a good liquidation professional will stand you in good stead for things to come. Making a move on voluntary liquidation early on can avoid the stress often caused by compulsory liquidation – creditors enforcing the process when you and your business are caught off guard. It’s also worth noting that it is, in fact, illegal to trade with an insolvent company, so getting the procedure started as early as possible is absolutely essential.
If you’re unsure about company liquidation or insolvency, there are a number of professionals who will happily offer advice and guidance and take you through the process – it doesn’t have to be as stressful as people think.
So how can bankruptcy affect your business?
If you are a company director and have been made, or declared yourself bankrupt, there are a couple of key restrictions which will be enforced which should be aware of. While your company is safe, you will not be able to act as director for your company for 12 months unless you receive permission from the courts. The other restriction is that you cannot operate the business under a different name unless you contact your clients directly to inform them that you are bankrupt.
To be clear, individual bankruptcy can have some restrictions on how you interact with your company, but your company is largely safe unless it is unable to pay its debts and carry on day to day proceedings. Various types of company insolvency or liquidation are then implemented, and you as an individual are shielded from their effects as the business is wound up.