Advantages and Disadvantages of Liquidation

Reviewed by

Chris Andersen

Reviewed by Chris Andersen

Chris became an Insolvency Practitioner in 2014 and is currently regulated by the IPA.

He is experienced in contentious insolvency with excellent analytical skills and strong knowledge of both general and technical insolvency matters.

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10th April 2024

Insolvent liquidation offers a structured process for dissolving a debt-ridden company, effectively halting creditor pressures and potential legal challenges. However, it leads to the permanent closure of the business, and directors face an investigation into their actions.

Contact Company Debt’s licensed insolvency practitioners today to navigate your CVL process with expert guidance and support.

Advantages Of Liquidating A Business

• Permanently Clears Debts: Liquidation means most business debts you haven’t personally guaranteed are wiped clean, giving you a fresh start.
• Stops Legal Action: Once you liquidate, any legal actions against your company come to a halt, freeing you from this pressure.
• Has a Low One-Off Cost: The cost of liquidating is usually taken from the sale of assets and is often less than the total debt, making it financially manageable.
• Ensures Staff Get Paid: If the business can’t pay wages, your staff (and directors, if they’re an employee too) can claim owed pay from the Redundancy Payments Office.
• Ends Lease Obligations: When you liquidate, any leases and hire purchase agreements are typically terminated, so you don’t need to worry about ongoing payments.
• Relieves Pressure from Creditors: The insolvency practitioner deals with creditors like HMRC for you, saving you from stressful interactions and intimidating communications.
• Fresh Start in Business or Employment: Post-liquidation, you’re free to embark on new business ventures or seek employment elsewhere.
• Peace with HMRC: After liquidation, you won’t have HMRC on your case for business-related taxes like PAYE or VAT.

Disadvantages To Liquidation

Liquidation also has its disadvantages, including;

• Sale of Company Assets: All assets owned by the company, including property, vehicles, and machinery, will be sold to pay off creditors.
• Personal Guarantee Liabilities: If you, as a director, have signed personal guarantees for business debts, these will be called upon during liquidation. This can blur the line between corporate and personal debt, potentially risking personal assets like your home.
• Risk of Wrongful Trading Accusations: The insolvency practitioner will investigate your actions before the company’s insolvency. If found that you continued trading while knowing the company was insolvent, you might face charges of wrongful trading.
• Directors’ Loan Repayments: Outstanding overdrawn director’s loan accounts in liquidation must be repaid. The inability to repay could lead to negotiations for a lower amount, depending on the case.
• Employee Redundancy: Liquidating your business means all employees will lose their jobs. This can be particularly difficult if you have a loyal and close-knit workforce, making it a painful aspect of the process.
• Creditor and Supplier Losses: Suppliers and creditors are likely to lose money, as they may not recover all amounts owed.
• Loss of Business Reputation and Licences: The company’s reputation, any trading licenses, and other valuable intangible assets will be lost.

Learn More about Liquidation

Read our full articles on liquidating a company, and what happens to directors during company liquidation.

Facing liquidation challenges? Reach out to Company Debt today for expert guidance and support tailored to your unique situation