The principle effects of all liquidations are that
(a) the company stops trading
(b) the powers of the directors cease
However, other effects will depend on what type of liquidation has taken place. In this article we’ll discuss the different types of liquidation alongside their specific repercussions.
Business Liquidation Effects are Dependant on the Type of Insolvency
Compulsory Liquidation – Where creditors have forced a company into liquidation, an Insolvency Practitioner will take control of your business, leaving directors with few options. There will certainly be an investigation into directorial conduct in the period preceding the insolvency which could leave directors open to charges of wrongful trading.
Voluntary Liquidation – Where a company chooses voluntary liquidation, the directors retain more control, and can proceed at a pace which suits them.
Effects on Directors
Once the company is in liquidation the directors hand over responsibility to the insolvency practitioner. Their powers cease and their principal action, from this point on, is to assist the liquidator with questions, including the creation of a Statement of Affairs document.
Directors will have their actions in the period preceding insolvency investigated, by the liquidator, for signs of wrongful or fraudulent trading.
Directors do not risk personal liability for corporate debt unless there is evidence of misfeasance, or a personal guarantee document has been signed.
What are the Consequences of Liquidating a Company?
In most cases liquidations end with the dissolution of the company, meaning it is struck off the register at Companies House. The liquidator’s job is to realise the assets of the company by selling them off and distributing the money to creditors in their order of priority.
Company directors will be left without their position, although there may be the possibility to purchase some of the company’s assets (including intellectual property) through a pre-pack administration.
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