Does Liquidation Spell The End For My Business

Some companies eventually struggle to deal with outstanding debts or have suffered do to the economic climate, at which point the director/directors may decide that the best option is to close the business. This is known as a Creditor's Voluntary Liquidation, it essentially involves the creditors agreeing to liquidate the assets of the business and take a share to shrink their losses.

At this point an insolvency practitioner will be chosen to assist the liquidation and make sure the assets of the company are valued at the best price and then sold to the highest bidder. This does not stop a director of the original business starting up a new venture and bidding for some or all of the existing assets. Essentially this allows all the directors of the business to found a new company and continue trading without the old company's debt.

This is an option that can work quite well for some businesses but before considering this option, the directors of a company must be certain that they will avoid allegations of wrongful trading by the liquidator of the original business. If the practices of the directors are called into question they may face legal action and could acquire some of the old company's debts.

There is no guarantee that when attempting to purchase the assets of a liquidated company that the liquidator won't sell them to an alternate bidder. In order to avoid this scenario it is possible to agree a 'pre pack liquidation' process, also known as 'Pheonixing'. This involves a predetermined deal with the liquidator before the liquidation process.

This method of liquidation is often considered a quick-fix solution to evade debt it will not be considered by insolvency practitioners unless the business is guaranteed to fail. If a company does fail, the creditors will lose out anyway and the majority of businesses will try and avoid further loss of jobs and trading. This is an ideal solution to a business that is stable but has fallen on hard times due to circumstances outside its control.