How can I avoid liquidation?

How can I prevent my company from being liquidated?

If your company is experiencing financial challenges, you may be wondering how you can avoid your business from going into liquidation.

The good news is that there are a number of business rescue and recovery options available to companies in this position which can be used to facilitate a turnaround of its fortunes and steer it away from liquidation.

How to avoid company liquidation

No business owner sets out with the intention of their company failing and having to enter liquidation. So when times get tough and the business begins experiencing issues such as squeezed cash flow, falling profits, and increasing overheads, it is understandable that directors may not know where to turn when looking to stop their company from going into liquidation.

By seeking the advice of a licensed insolvency practitioner at the earliest signs of impending insolvency, directors are giving their company the very best chance possible of avoiding liquidation.

An insolvency practitioner will be able to assess the position your company has found itself in before helping you to explore the options which may be open to you to stop your company from being liquidated.

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What are the alternatives to liquidation?

There are a number of formal insolvency processes which can be utilised as an alternative to liquidation so long as the business is viable in the long term. The two most popular business rescue options are Administration and a Company Voluntary Arrangement (CVA).

So, if you are looking to avoid liquidation and prevent your company being forced to close, here is what you need to know about these two company rescue options which can help turn around a failing business:

• Administration – Administration provides a financially challenged company with the time and breathing space needed to restructure and/or refinance its operations free from creditor pressure. Administration places a legal ringfence – known as a moratorium – around the company, meaning no legal action can be started or continued against the company. This gives the appointed insolvency practitioner the ability to assess all available options and put a robust plan in place to restructure.

This could include closing down unprofitable parts of the business so cash and manpower can be diverted to those areas of the company which generate more revenue, refinancing existing borrowing to more favourable rates and/or terms, or exploring the possibility of selling the company’s assets to a connected or unconnected party in order to allow trade to continue free from the burden of unmanageable debts

• Company Voluntary Arrangement (CVA) – A Company Voluntary Arrangement functions as a formal payment plan which is entered into by an insolvent company on the brink of liquidation and its outstanding creditors. A payment proposal is presented to creditors who will be asked to vote on the terms. If the proposal is accepted by at least 75% (by value) of creditors then the CVA becomes legally binding on all parties.

A CVA typically lasts for 3-5 years, during which time an agreed monthly contribution towards the CVA will be made by the company which the appointed insolvency practitioner will then distribute to creditors on a proportional basis. In many cases some unaffordable debt will be written off as part of the process.

What happens when liquidation cannot be avoided?

While the above processes can be great options for viable businesses, they are not unfortunately suitable for all cases of company insolvency.

In some instances, liquidation is in fact the best option for all parties. Liquidation can protect directors from allegations of wrongful trading, shield creditors from incurring further losses while also gives them a route to recovering the money they are owed, and allows the company to be wound up in an orderly manner in full compliance with the Insolvency Act 1986.

An insolvent company can enter liquidation in two main ways; either voluntarily via a Creditors’ Voluntary Liquidation (CVL), or it can be forced into liquidation by the courts via Compulsory Liquidation.

If you want to avoid liquidation and look at ways of saving your company, call the team at UK Liquidators. Our nationwide team of licensed insolvency practitioners are here to help you understand your options and plot a route forward.