Advantages and Disadvantages of Liquidation

There a number of advantages and disadvantages of Liquidation. Their relevance will very much depend on the individual circumstances of your company.

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Liquidation Advantages

1. Relatively low cost of implementation
The direct cost associated with implementing a CVL are associated with paying an Insolvency Practitioner to complete a statement of affairs for the company and facilitate a creditors meeting. This cost will vary depending on the company’s size but will normally start at c£3500 and will need to be paid up front by the company or its directors. Any further costs associated with the CVL are paid from the cash raised by the sale of the company’s assets.

2. Debt written off
Once its assets are sold, the company is liquidated. The liquidator will use the proceeds of the asset sale to pay the company’s creditors as far as is possible but any unpaid debts are then written off. Generally speaking the directors are not personally responsible for the repayment of these unless they have given personal guarantees.

3. Investment funds retained
The liquidation of a company and subsequent writing off of any outstanding debt allows any personal funds available to directors or potential investors to be retained for other projects. These funds can therefore be used to support the growth of a different business rather than repaying the debts of a company that has little or no future.

Liquidation Disadvantages

It is important to understand that as well as benefits, implementing a Creditors Voluntary Liquidation can also have some disadvantages. Before making a decision to start the CVL process you need to understand these in the context of your company’s situation

1. Company closed
The liquidation of the company means that it will be closed. Generally speaking the name, brand and goodwill of the business will be lost.

2. Directors conduct investigated
Given that the company is liquidated, the appointed liquidator will have an obligation to report to the Insolvency Service on the conduct of any directors of the company for the last three years. If any of the directors have acted inappropriately, particularly if they have allowed HMRC debts to grow while they knew the company was insolvent, they may risk disqualification or being held personally liable for the company’s debts.

3. Overdrawn directors current account and guarantees called in
If the directors owe money to the company in the form of an overdrawn director’s current account they will be personally liable for the repayment of this once it is liquidated.

If any of the directors have given personal guarantees they will then become personally responsible for the repayment of these debts after the company is liquidated.

4. Teams and synergy of employees lost
Once a liquidator is appointed they will start to make the company’s employees redundant. Employees will act in their own best interests and leave the company to find employment elsewhere. As a result productive and experienced people will be lost.

More Liquidation Information

Only a brief overview of Liquidation advantages and disadvantages are given here. For more information about the Liquidation solution see one of our dedicated websites:

Creditors Voluntary Liquidation (CVL)
Members Voluntary Liquidation (MVL)

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