Company bankruptcy is a term commonly used to refer to company liquidation. In the UK, the term bankruptcy is only applicable to individuals, including sole traders and members of partnerships. For a limited company, a process known as liquidation would be the equivalent of company bankruptcy.
Company bankruptcy is known as liquidation in the UK
In the UK, a company cannot “go bankrupt”, instead it enters liquidation. An insolvent limited company can enter a creditors voluntary liquidation (CVL). This driven by the directors and members or shareholders of the company and will result in the company ceasing to trade and being wound up and struck off at Companies House.
A compulsory liquidation follows a winding-up petition which can be petitioned by one or more of your creditors and is a court-based procedure.
A company can enter into liquidation when it is either solvent or insolvent, the status of the company will determine the liquidation procedure.
When an insolvent company enters into liquidation, after all assets have been realised, a distribution of any proceeds is made to creditors, any remaining debt will eventually die with the company as it ceases to exist and is taken off the register at Companies’ House.
A solvent company would similarly realise all assets, repay all outstanding debts and liabilities and then distribute the residual monies to shareholders. The company would eventually cease to exist and would be struck off the register at Companies House.
A liquidation procedure, whether solvent or insolvent, can only be entered and carried out by a licensed insolvency practice.
A company is classed as insolvent when it can no longer pay its debts when they fall due or where the value of liabilities and debts exceeds the total value of assets. Directors have a legal obligation not to continue trading a company when it is insolvent as this will result in the position of creditors deteriorating.
If you run a company which you believe to be insolvent, you may want to continue to trade, and prevent company liquidation. There are processes available that will provide limited companies a lifeline to enable them to recover.
It may be something as simple as restructuring finances, but this is not a viable solution if the underlying problems have not been addressed.
Entering a formal payment plan, known as a Company Voluntary Arrangement (CVA) would allow you to make affordable monthly repayments over a period of 5 years. This arrangement would be put in place by one of our insolvency practitioners. For this to work, the underlying core business needs to be viable and it also depends on the co-operation of creditors.
Company administration can provide protection from creditors, while administrators effectively take control of the company. This gives the insolvency practitioner enough time to assess whether or not the business (or parts of the business) could continue or be sold as a going concern. Exit from administration could be a CVA, a pre-packaged sale, refinance – or a combination. If all else fails the company may be liquidated.
Bankruptcy is an option available to individuals who owe at least £5,000 who cannot afford to repay what they owe to creditors. It can put your personal assets such as house, car (or even business premises, if you own them personally) at risk. The process of bankruptcy is similar to liquidation of a company in that significant assets (house, car, etc) are sold and the proceeds distributed to your creditors. In most cases of bankruptcy, any remaining unsecured debts will be written off – usually after a year.
Alternative to personal bankruptcy
Bankruptcy offers no protection to personal assets, which could mean you may lose assets such as your home and car. There are options to help you repay your debts, which may in some instances help protect your assets. In some cases you may be able to restructure your borrowing or if you are a house owner possibly re-mortgage.
Another solution may be an individual voluntary arrangement (IVA), An IVA is a procedure which allows you to group all of your unsecured debt, and make affordable monthly repayments over a period of up to 5 years. Any unsecured debt remaining at the end of the arrangement is written off. An IVA can only be arranged through a licensed insolvency practitioner, so if you wonder if it would work for your circumstances contact us now for more information.
When a company can no longer meet its financial obligations, it is known as being insolvent. If the business has no future, liquidation is a process to close down the company. Company bankruptcy is a US term, which has the same meaning. In the UK, bankruptcy is only applicable to individuals.
How we can help
If you are having difficulties meeting your financial obligations either on a company or individual level, we can help. As a licensed insolvency practice we can help you work out the right decision that helps you settle your finances.