Liquidation is far more common than many people realise. In the fourth quarter of 2018 there were 200 Compulsory Liquidations and 80 Creditors Voluntary Liquidations in Scotland: that’s an average of 70 compulsory liquidations each month.
There are many unforeseen circumstances that can lead to a sudden shortage of cash flow in your company through no fault of your own. The key is to act quickly once you realise that your company is in financial difficulty. By acting quickly and at the first signs of a problem you will maximise the number of options open to you. You will also protect yourself during any investigation into your conduct as the director as it is your duty to stop trading as soon as you realise the company is insolvent. Insolvency procedures can be an extremely useful tool for directors if used correctly. Contact us for a FREE and confidential chat and we can help you with any concerns you may be facing. Local Business Rescue has access to a team of professional Insolvency Practitioners who operate throughout Scotland.
Liquidation options for a company in Scotland
A company is deemed to be solvent when it has enough assets to pay off all creditors within a period of 12 months including interest.
- If 75% of the shareholders agree then a solvent company can use the MVL process to release the remaining funds to the shareholders once all the creditors have been paid. The process must be managed by a licenced Insolvency Practitioner (IP) and is often used after directorship changes, company restructuring or simply when the company is no longer required. If shareholders are owed more than £25,000 an MVL can also be the most tax efficient option by claiming Entrepreneurs Relief .
A company is deemed to be insolvent when its liabilities are more than its assets or when it is unable to pay its debts.
There are tests you can use to check if your company is insolvent.
- If the company is insolvent and 75% of the shareholders agree that there is no future for the company, then the most common route is to use a CVL. A licensed Insolvency Practitioner (IP) will take control of the business and sell the company assets, pay creditors and finalise all company matters so as to close the business.
- Any outstanding company debts will be written off. The only exception here is if the company has loans secured by you personally. These would still require to be paid.
- This is the most common type of liquidation in Scotland. If you owe more than £750 to an individual or company they have the right to petition the court to try and get their money back. Company directors who can’t pay their HMRC tax bill make the majority of company liquidations in Scotland.
- If you have received a winding up notice and your creditors are now forcing your company into liquidation then you must act quickly. Once the winding up petition is advertised then your bank will freeze your company accounts.
If you are being threatened with legal action, contact Local Business Rescue as soon as you can. You will be able to speak with a licenced Insolvency Practitioner for FREE who will talk through all the options available in your particular case. It is always better to seek the advice of a professional early when it comes to insolvency matters, especially if you are trying to save a viable company. The number of options open to you will shrink as creditor pressure builds and your financial situation worsens.
What are the advantages and disadvantages of company liquidation?
- Insolvency Practitioner (IP) takes over your company and handles administration.
- IP handles all communication with creditors.
- Debts stop accumulating and creditor pressure ceases.
- Closes down all your property leases and long term liabilities such as equipment rental, so you are not held to term.
- Takes care of staff redundancies, contracts and sells off all assets then finally closes the company.
- Most debts are written off (with some exceptions).
- You get closure knowing that the old company is gone.
- You are free to start trading as a director in another company.
- Your company name and brand are affected.
- Personal liability for some debt if you gave a personal guarantee.
- You lose all your staff and infrastructure.
- Investigation into the director’s conduct.
- If found guilty of any wrongdoing you could be barred from acting as a director in another limited company for up to 15 years.
- If the director’s loan account is in debt you could be asked to repay this.
Can I be a director of a company after liquidation?
The short answer is yes!
You can set up a new limited company with a different name. When a company goes through liquidation an investigation is carried out by the Insolvency Practitioner into how you as a director acted. As long as you have acted legally and in the best interest of the company, you have nothing to be concerned about.
The investigation is there to ensure that you did not act in a manner that could be classed as either wrongful or fraudulent trading. The easiest way to avoid this is simply to act quickly when you realise your company is in financial difficulty.
Who gets paid first when a company goes into Administration in Scotland?
The payouts are made according to the Insolvency Act (1986) which lists creditors in the following order;
- Secured creditors with a fixed charge & Insolvency fees
- Preferential creditors
- Secured creditors with a floating charge
- Unsecured creditors
Are insolvency procedures different in Scotland and England?
Yes, there are differences between insolvency procedures in Scotland and England and it’s important that you get the information that is right for you. Much of the information available online focuses on England. We ensure our information is relevant to Scotland and Scottish company directors. We will ensure you receive access to a licenced Insolvency Practitioner who has local knowledge.