Top 5 problems when liquidating your company

Are you considering liquidation for your struggling business but are unsure of the process and what problems can occur? 

Do you need help navigating this difficult time? 

Exodus Insolvency are here to help guide you though the main problems company directors can face when liquidating their limited company and the solutions for these problems. 

Liquidating a company can be a difficult and stressful process for any director. It involves a lot of legal and financial complexities, and there are many potential pitfalls that can arise along the way. In this article, we’ll look at the top 5 problems directors face when liquidating their company and provide solutions to each of these problems.

Personal liability for company debts

One of the biggest concerns for directors when liquidating their company is the risk of personal liability for the company’s debts. Directors have a legal duty to act in the best interests of the company and its creditors, and in some cases, can be held personally liable for any losses suffered by creditors if they breach this duty.

Solution: It is important to keep accurate records of the company’s finances and transactions to demonstrate that you have acted in accordance with your duties as a director. In addition, you should seek professional advice, as an expert can detail the various outcomes that might occur based on your circumstances and help you understand your legal obligations. 

Losing control of the liquidation process

Another concern for directors is the loss of control over the liquidation process. Once a liquidator has been appointed, they will take over the management of the company’s affairs and assets, including any remaining cash and property.

Solution: Directors can take steps to retain some control over the process by appointing an insolvency practitioner of their own choice before any creditors take action. This will enable them to have more input into the liquidation process and potentially reduce the costs of the liquidation.

Employees losing their jobs

When a company goes into liquidation, its employees may face losing their jobs and entitlements, such as redundancy pay and unpaid wages.

Solution: If liquidation and redundancies are unavoidable, directors can work with the liquidator to ensure that employees receive their entitlements as quickly as possible. In most cases, the redundancy payment services will step in to ensure employees are paid what is owed to them. 

Selling assets at a loss

During the liquidation process, the liquidator may need to sell the company’s assets to repay its debts. However, if the assets are sold at a loss, this can reduce the amount available to repay creditors and increase the risk of personal liability for the directors.

Solution: Directors can work with the liquidator to identify which assets should be sold and how to maximize their value. This may involve obtaining professional valuations, negotiating with buyers, and exploring alternative options, such as leasing or renting out assets.

Negative impact on personal credit rating

When a company goes into liquidation, it can have a negative impact on the personal credit rating of its directors. This can make it more difficult for them to obtain credit in the future.

Solution: Directors can take steps to minimize the impact on their personal credit rating by seeking professional advice, maintaining accurate records, and working with the liquidator to ensure that all legal obligations are met.

In conclusion, liquidation can be a difficult and challenging process for directors, but there are solutions available to address the most common problems they may face. Seeking professional advice, retaining some control over the process, exploring alternative options, maximizing asset value, and minimizing the impact on personal credit ratings can all help to mitigate the risks associated with liquidation.