The Covid-19 pandemic continues to have a serious impact on the UK economy and this is taking its toll on businesses. There are rising insolvency levels and many directors are now choosing to liquidate. Is this the situation with your company and do you need advice on what steps to take?

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COVID Liquidation

Liquidation usually occurs because a business is insolvent and so no feasible recovery plan can be put in place. During the lockdowns, the government set up a range of measures such as working with banks to provide low interest-rate loans as well as putting restrictions on Statutory Demands and winding up petitions, via the Corporate Insolvency and Governance Act. However, for some firms, these were only sticking plasters, financial difficulty remained and trading has not returned to normal.

You may also be facing additional pressures with your employees returning to work after furlough, a higher wage bill, and demands to start repaying the Covid support loan. Debt can soon mount up and your firm may be one of many trying to deal with a cash flow crisis, with demands to settle invoices from a range of creditors. 

What to do if you are Considering Liquidation?

Knowing your business is in financial distress and either insolvent or on the brink of this can be enormously stressful. You may have uncertainty about what action to take and who to turn to for advice. This is when professional advice is invaluable and you should contact a licensed insolvency practitioner without delay. They will be able to provide you with non-judgmental guidance so that you can decide on the best way forward.

This will include getting a handle on your cash flow situation and advising you on how to proceed with creditors. If you owe overdue tax to HMRC, this may require specialist negotiation, as this is often the creditor that will take action first to wind a business up. 

Is Liquidation the Only Option – what about Business Rescue?

If you believe that your company can be turned around, then an insolvency practitioner is able to advise on rescue measures, as well as on how to liquidate a business.  As well as understanding the issues specific to your company, they are also likely to have knowledge of your particular business sector and what its prospects are and so their advice will be highly relevant.

There are times when liquidation is the only option, but in other cases, it might be possible to set up a Company Voluntary Arrangement, a legally binding procedure where the business keeps trading and creditors receive payments over an extended period, which could typically be for five years. Or, your company could enter administration and a new buyer could be found, including among existing management. Alternatively, additional lines of funding could be secured and a restructure planned. Much will depend on your company’s financial health, the size of the debts, and the future trading prospects.

Meanwhile, liquidation can also be seen as a positive way forward – provide it is on a voluntary basis. It can mean the orderly closure of a company that is no longer viable and so leave you free to explore other business opportunities, without the burden of debt. A key objective should be to avoid compulsory liquidation in court and this is where an insolvency practitioner’s guidance can be enormously beneficial.  If this does occur, it can be exceptionally challenging.  There may be more investigation into director conduct and wrongful trading and potentially less scope to set up another limited company.

Why choose Creditors’ Voluntary Liquidation?

The advantage of this means directors can choose their own liquidator, rather than have a court-appointed Official Receiver imposed. Creditors’ Voluntary Liquidation means more control in terms of managing reputational damage, unpaid debts will be written off – unless there are personal guarantees – and the business closed down permanently by being struck off the Companies House register.

Cases of Covid remain high in the UK, there is a long way to go before the economy recovers and so increasingly, a greater level of insolvencies are set to remain a part of the landscape. If you believe company liquidation may be necessary, don’t put off seeking advice – this is when objective expertise comes into its own.