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business is failing

My business is failing – I want to walk away

Authored by Lisa Hogg

Lisa Hogg

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Approximate read time: 6 minutes

If a company’s financial difficulties are left unaided, and you believe the business is failing. This is usually indicated by a lack of cash flow, high levels of debt, and an inability to meet payments on time.

When this happens and the business is classed as insolvent, a director may wish to completely close down their company and walk away, writing off debts and financial issues in the process.

If there is no realistic vision of recovery for a financially-challenged company, the director is obliged to take action. Whether this is entering into administration or liquidation, not doing so may result in disqualification for trading while insolvent, or wrongful trading.

There are many options open to directors in this position, just as there are many causes of the issue in the first place.

What is the cause?

There are several reasons why a business may fail. The most important step in any failing business is to identify the root of the problem. The problem may be financially triggered, or may be down to issues within the management of the company. 

The cause of the financial issues may determine the best solution for ‘walking away’ from the company. Causes of business failure may include:

  • Unpaid debt to several creditors.
  • Inadequate financing caused by poor cash flow.
  • Unpaid invoices/overdependence on a small customer-base.

If your business is failing and is past the point of rescue, or you do not wish to carry on in business, then we can help to find the most practical option for you in your situation.

What are the options?

If you wish to close the doors on your company and walk away, there are several  procedures  available to help you do this. The success will very much be dependent on the financial situation of the company and where you stand.

Administration 

Administration is a process by which a licensed insolvency practitioner (IP) takes over the management of the company. Administration is most commonly practiced as a means of business rescue, stabilising the company’s financial state by allowing freedom from creditors, while working out the best way forward.

However, administration can also be used to sell or liquidate the company, realising its assets to reimburse any debt incurred. This allows for a smooth process between the beginning of administration and the liquidation itself, giving the company the opportunity to fulfil any outstanding contracts, settle necessary debts, and prepare its workforce for the liquidation of the company.

Find out more about how Administrations work

Creditors Voluntary Liquidation (CVL) 

If the closure of your company needs to happen as soon as possible, a creditors voluntary liquidation (CVL) may be the best solution. A CVL is carried out by a licensed insolvency practitioner (IP), and involves the complete closure of a company and the sale of its assets. A CVL is the most common form of liquidation that takes place in the UK. Advantages of a CVL include:

  • The ability to purchase company assets at market value for future use.
  • If carried out on the realisation of insolvency, directors reduce the risk of wrongful trading.
  • Employees will still receive redundancy payments (subject to limitations).

A CVL also allows the director the freedom to start up a new business after the company’s closure, as long as there has been no instance of wrongful trading, which is checked for when beginning a CVL.

The cost of a liquidation can vary depending on your company size, assets, and the level of work involved in bringing the company to a close. We offer a free consultation to discuss all of these aspects, and will help you to determine the convenience of a CVL in your situation.

Find out everything you need about CVL’s

Dissolution 

A Dissolution is the ending of a company’s existence through striking it off the Companies House register. It is a voluntary procedure usually carried out for companies that have reached the end of their useful life.

Although insolvent companies can also be struck off from companies’ house and dissolved, this procedure is not an alternative to a formal insolvency procedure where these are applicable.  You must also let all existing and contingent creditors, know of your intentions to close your company. Creditors have three months to choose to object to the strike off if they believe they are still going to get payment, however, if nobody objects the company will be dissolved. In order to be deemed appropriate for a dissolution, your company must not have any ongoing legal or insolvency proceedings within the three months prior to your application. These include:

  • A change of company name.
  • Being/having the possibility of being subject to prosecution or disqualification.
  • Any outstanding employment liabilities such as PAYE, outstanding wages, redundancy pay or outstanding wages.
  • Trading or disposing of stock. It can, however, dispose of assets previously used in operations (e.g. the sale of a redundant device/machine)

It is important to note that creditors may object to your company being dissolved. This may be due to it causing a poorer return for them than other realistic options. A creditor also has the option, with adequate reason, to resurrect a dissolved company up to 6 years after its dissolution. It is sensible to remember, therefore, that a dissolution does not always guarantee freedom from debts for which you are liable.

Get more information on how a Dissolution works

Summary 

It is important for a director to act towards liquidating the company, or placing it into administration, as soon as possible, as failing to do so when a company is struggling can lead to disqualification for trading while insolvent.

Whether it’s a creditors voluntary liquidation (CVL), Administration ending in liquidation/sale, or dissolution, there are a number of different methods we use to bring companies to a close.

Ultimately, when your business is failing, these options give you breathing space from creditors and, if no instance of wrongful trading is identified, the freedom to establish a new company in the future. It is important to carefully plan and compare to select the best option for your company, as it is important to make the process as pragmatic as possible.

How we can help?

If your business is failing, and you wish to close the doors and walk away, it is important to act fast, as failing to do so can lead to serious consequences. We are licensed insolvency practitioners with the power and skills to provide you with the correct guidance for your individual situation. We offer a free consultation with one of our experienced advisors, who will guide you through the steps available to you to achieve this.

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