As a director, the liquidation of your company is a daunting prospect. What the process involves, the legalities that come with it, and what life holds after, are all questions that you may find yourself confronting. However, you're not alone in going through it. Every year, hundreds of companies go through this process.
And it isn't the end of the line - in fact, directors can find peace of mind from the process.
What can a director expect with liquidation
Generally, companies face liquidation due to insolvency, restructuring or the closing down of their business. Depending on whether it's voluntary or involuntary, either a shareholder-appointed or court-appointed liquidator will step in to manage the process.
In the case of insolvency, the liquidator goes through the company's financial affairs, seeking the reason for its failure. With the business under their control, they freeze unsecured assets and sell them to repay creditors and shareholders. Occasionally, when the situation calls for it, they will hold a creditors meeting. They will deal with the secured creditors and the rights they have to secured assets.
Liquidators can contact almost anyone involved with your company who have knowledge of its affairs, past or present, and to deal with them when necessary. Overall, their aim is to help secure the best outcome possible for everyone involved and to be fully informed.
What liquidation involves for a director
Once liquidation begins, your powers as a director end and your role in the process may be minimal. Your duties as a director continue. So you'll need to assist the liquidators, act in good faith, and provide company books and records, as well as complete a Director's Questionnaire and a Statement of Affairs form for your company. Within this, you'll give information such as:
- A brief outline of your business's history.
- Details on your company's trading activity.
- What caused your company to fail.
- All the company's assets and liabilities.
- Complete shareholder information.
- Any involvement in legal claims, whether by or against your company.
As a director, it's also your responsibility to help liquidators find and access business records and assets. Any questions they ask you about the business require accurate and honest answers from you as well. It's your duty to assist the liquidator where necessary in the process, so they can help your company get the best result for everyone involved.
The benefits of liquidation for a director
When going through a liquidation, it's important to remember that it's not an inherently bad process. You can find many long-term benefits from it.
Technology changes and buying trends move quickly in many industries. Liquidation brings finality to a stressful situation of you making sure that, your company is meeting its duties and debts. As a director, this can bring you a lot of relief.
Once liquidation begins, the company position freezes and crystalises and the liquidator decides if they will sell assets piecemeal, the company as a going concern, or proceed with a simple close.
The chosen liquidator, should act ethically, and acts transparently in their dealings, giving you and everyone involved the security of knowing what's happening.
It also brings to an end the prospect of trading insolvently and the liability this can bring, particularly if you continue and worsen the business's position.
Understanding what happened
Sometimes running a business often without any independent assistance means you can lose sight of the overall picture.
Turning a loss making business around is not easy. It takes resilience and patience. A liquidation stop you spending further money on something that is not working.
A liquidator finds out what happened within the company, allowing you to understand what went wrong. Liquidation isn't always a reflection of your skill as a director, and if outside factors played a role it can take a weight off of your mind to know that. It also gives you the opportunity to learn from any mistakes that did occur, and grow from them.
Sometimes an upfront fee is sought if there are not assets. The liquidation fees aren't placed on you or the shareholders. Unless the company doesn't own any assets, Schedule Seven of the Companies Act 1993 treats fees as a preferential claim, and the proceeds of unencumbered stocks and debtors of the company cover them.
Personal Guarantees - not remedied by liquidation
Another thing to consider as a director are any debts you've personally guaranteed, as liquidation doesn't prevent you from being liable for these, and creditors can call on you to settle them. There are also options available to settle personal obligations that arise which will not lead to bankruptcy.
The liquidation process can give you a fresh start, without old debts and failures weighing you down. And, unless you have had multiple failures, there's nothing preventing you from beginning a new business later down the line if you wanted to try running a company again.
What to be aware of as a director for a company in liquidation
One of the requirements put on liquidators is that they investigate how you ran your company. This involves identifying where directors may have made poor choices, overdrawn their shareholder current accounts, or undervalued transactions when they shouldn't have. They investigate any possible breaches in director duties and report/or pursue these.
If you personally have no means to repay obligations to your company, then this is taken into account. Sometimes there are options to restructure and buy back company assets from the liquidator with the support of key customers and suppliers, particularly where there is less value to be gained from a sale to a 3rd party.
Some people are not meant to be directors. While it may be a "dream" to be the master of your own destiny, the reality is that if you are spending your own and others money on an unprofitable enterprise, you will be more stressed and less happy than working for someone else. Liquidation can bring to a close a stressful period in your life as a director. With the right advice and the right people to support you, you may find that it gives you peace of mind, and lets you breathe easier. Talk to us at McDonald Vague if you'd like to know more about what the right decision is for you and your company.