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Many directors question whether liquidation is still the correct procedure for a company with no assets.

Voluntary liquidation, known within the industry as a Creditors Voluntary Liquidation, is the typical procedure by which a company will close down to escape creditor pressure. These procedures are usually funded by the sale of corporate assets but what happens when there are none?

What Happens When a Company with No Assets Wishes to Liquidate?

Usually the sale of assets – be they, stock, machinery, or property – are sold by the appointed liquidator to pay both creditors, and the insolvency practitioners themselves for doing the work. Where this isn’t available, the responsibility for the payment passes to:

  • company directors
  • shareholders

These individuals will have to find personal funds to pay for the insolvency process and, where no money is available, corporate insolvency can occasionally propel directors into personal bankruptcy as a result.

It’s important to note that while it is a common practice on the web to see firms suggesting that director’s redundancy payments can be used to fund a cheap liquidation, this is not legally permissible.

If I can’t Afford to Liquidate, What Will Happen?

Some directors do opt to wait until compulsory liquidation is forced by a creditor out of a concern that they will not be able to find the necessary funds themselves to choose the voluntary liquidation process themselves.

Remember that all liquidator’s have a mandatory responsibility to investigate the actions of directors in the period preceding insolvency so, if you’re considering this course of action, you should be very clear on your legal responsibilities. Paying any creditor in priority over another, or taking any salary yourself, subsequent to having become aware of insolvency could lead you open to charges of wrongful trading.

We suggest giving us a call if you’re in financial difficulty for a calm, informed conversation about your situation, with no strings attached. We’re here to help.

Are Directors Entitled to Redundancy Payments?

While these payments cannot be used to fund the liquidation, directors are entitled to statutory redundancy payments. We will help you make a claim should you choose to work with us for a nominal administration fee. Again, you should avoid any practititioner who ties their own fee into a percentage of redundancy claimed, a not uncommon practicle in this industry.