Liquidation may seem like a very bleak time, with the ending of a business and all the emotional baggage that this entails, but for many people liquidating a failing company marks a new beginning in their business life.
It is possible of course that a solvent company may be liquidated simply to bring a full stop to the life of the firm and in this case the directors other business interests will continue unabated. But if a company goes into liquidation due to insolvency then it is a different matter.
Whilst winding up a limited company means the end of the legal entity that is the company this is no reason to think that the actual business of the firm needs to stop. In fact, it is a more common occurrence than people think for a business to close but for the trading style, brand and assets of the firm to continue. Directors can choose to open up a new or ‘Phoenix’ company to carry on the trading style and protect jobs from the old business.
For directors, there are a number of useful advantages to liquidation.
If a company is wound up in good time a liquidation provides protection from allegations of wrongful trading meaning that the directors avoid any penalties associated with this. Closing the ailing company thus protects the directors from personal liabilities for debts unless of course there are any personal guarantees in place.
Once a firm is in the process of administration or liquidation then debt recovery action stops as does contact with the Directors from creditor firms and their agents. This easing of the pressure gives those involved time to take stock and plan their next move.
It’s important to realise at this point 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.
There are however a number of practical points that need to be borne in mind before liquidation.
As previously noted there may be personal guarantees in place and the directors affected the need to think about how these will be removed or satisfied.
If a new company is to be set up then it may find it difficult to obtain a bank account or funding if it happens after liquidation. Setting these up in advance of any action can often mean that the directors can continue in their new business when the old one is wound up.
If the owners decide that they want to go for a ‘pre-pack’ option then the arrangements for this need to be made before the firm goes into liquidation. By going for voluntary liquidation the directors can choose an insolvency practitioner who is sympathetic to their aims and get all their ducks in a row meaning that life after liquidation of the old company can be as straightforward as possible.
It is also important to realise that, even though the old company may legally be liable for debts and any default, in fact, suppliers may take a dim view if a new business springs up that looks ostensibly just like the old. In these cases, it is distinctly possible that credit facilities may not be forthcoming and directors need to prepare the ground by working out how they will organise their working capital after liquidation.
One of the biggest assets of many companies is their people and directors need to take steps to secure the best talent. It is important though that notice is taken of TUPE rules around transferring staff. In this case, it is really important to get a specialist on board who can advise how staff can be employed again post-liquidation proceedings.
There are a variety of costs and legal implications involved when liquidating a company so we’d always advocate that specialist advice is taken from a licensed Insolvency Practitioner before making any decisions. However, life after a liquidation in the right circumstances can prove to be a new start for the directors.