Covid-19 really has changed the corporate landscape, and that means entire industries are now contemplating whether they can actually carry on operating. When the curtain looks to be falling, it’s important to act in a way that ensures value is preserved, dignity is saved, and collateral damage minimised.
It’s also important to understand that while liquidation is often the last resort, there are alternative insolvency processes which can act as a rescue mechanism or provide the business with valuable breathing space.
So, what factors lead to liquidation? And how can this be avoided? It’s all to do with money! And more specifically a lack of it! Sometimes a business will have insurmountable debts that simply cannot be paid off now or in the future, something which is now hugely prevalent for the retail sector.
Ok, you’ve decided that liquidation is the best way forward for your crumbling business. Now what? Well, one option would be a Creditors Voluntary Liquidation (CVL). This procedure is a popular choice, and often used when there is no prospect of a company rescue. A CVL is where the company enters into liquidation out of court. One of the many benefits of a CVL is that the directors are initially able to control the timing of the process. It may also be possible for the directors to purchase the assets of the liquidated company in a new corporate vehicle.
The alternative to a CVL is compulsory liquidation, where the company is placed into liquidation by the court. This often happens after a creditor presents a winding up petition against the company due to unpaid debts. Following a compulsory liquidation, the official receiver is appointed as liquidator.
Following liquidation, the liquidator is tasked with investigating the circumstances preceding the liquidation and then recovering assets for the benefit of creditors. Every case is different, but the sooner the directors seek competent advice from insolvency practitioners, the sooner they will be able to deal with the company’s financial affairs. While liquidation can often spell the end of a company, sometimes it may be possible for the underlying business to be saved.
If you need advice on the most effective liquidation procedures, then get in contact with the team here at RG Insolvency.