What Is Limited Company Bankruptcy?
Company bankruptcy is a term commonly used when referring 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.
Whether you want to walk away from the business or wish to write off company debt and start again, we can advise you in plain, easy-to-understand language every step of the way.
Why would a limited company need liquidating?
A company is classed as insolvent when it can no longer pay its debts when they fall due, or the value of liabilities and debts exceed the assets’ total value. Directors have a legal obligation not to continue trading when a company is insolvent, and they must act in the creditors’ best interests to avoid their position further deteriorating.
If your insolvent company’s debts are so burdensome that recovery and repayment aren’t an option, you can choose to close the company by putting it into a Creditors Voluntary Liquidation (CVL). Doing so writes off all the company’s unaffordable unsecured debts and allows the directors to move on or start again afterwards.
Compulsory liquidation
Failing to act means your creditors could seek to close your company by force via compulsory liquidation. A compulsory liquidation is a court-based procedure following a winding-up petition from one or more of the company’s creditors.
Personal bankruptcy
While “company bankruptcy” is known as liquidation in the UK, personal bankruptcy can be a viable option for individuals who owe at least £5,000 and cannot afford to repay their creditors. It can put your personal assets such as a house, car (or even business premises, if you own them personally) at risk. The bankruptcy process is similar to a company liquidation 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 are usually written off after a year.
Alternative to personal bankruptcy
Bankruptcy offers no protection to personal assets, meaning you could lose assets like your home and car. There are other options to help 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 homeowner, possibly re-mortgage.
- Formal repayment arrangements
An Individual Voluntary Arrangement (IVA) could be another solution. An IVA is a procedure that allows you to group all your unsecured debt, making 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.
More on personal and sole trader debt
Close your bankrupt company via liquidation
If your company’s debts are of such a level that liquidation is the only viable option, you should speak to us as soon as possible.
- Close your limited company via a Creditors Voluntary Liquidation (CVL)
A Creditors Voluntary Liquidation (CVL) is a formal insolvency procedure designed for companies that are insolvent and have unmanageable debt. The process must be carried out by a licensed insolvency practitioner and will see the company closed and its assets sold. Once completed, any unsecured debts with the company will be written off.
More on a Creditor Voluntary Liquidation
Rescue my bankrupt company
If your company is insolvent, but repaying the debt is still possible, you may want to continue trading and prevent liquidation. There are processes available that will provide limited companies with a lifeline and help them recover. Failing to act can worsen your debts and increase creditor pressure, and ultimately make a director personally liable for a company’s debt.
- Repaying your debts via a Company Voluntary Arrangement (CVA)
Entering a formal payment plan, known as a Company Voluntary Arrangement (CVA), lets your company make affordable monthly repayments over up to 5 years. Licensed insolvency practitioners carry out these arrangements. For this to work, the core business must be viable and depends on the cooperation of creditors.
More on Company Voluntary Arrangements - Restructuring the company through Administration
Company administration can protect your company from creditor pressure while administrators take control. This gives the insolvency practitioner enough time to assess whether the business (or parts of the business) could continue or be sold as a going concern. The administration could lead to a CVA, a pre-packaged sale, refinancing, or a combination. If all else fails, the company may be liquidated.
More on administration
How we can help
If you are worried about your company’s financial position and the possibility of bankruptcy, our initial advisors can offer free, confidential advice and discuss your company’s financial problems. Our experienced consultants can offer a free, no-obligation consultation, where we can discuss your company’s solvent position and viable options.
- Speak with our initial advisers via phone or online chat. If we can help, we will arrange a free consultation with one of our consultants to discuss your situation in more depth.
- During the consultation, we will advise if an insolvency, or recovery procedure is the most appropriate route forward or what alternative options are available.
- After your consultation, if there is an appropriate route forward, we will issue the relevant documentation for you to formally engage us.
In summary
When a company can no longer meet its financial obligations, it is insolvent. If the business has no future, liquidation is a process to close the company. While you may be familiar with the term “company bankruptcy”, this applies to US companies and has a similar meaning to liquidation. In the UK, bankruptcy is only applicable to individuals. There are alternatives to liquidation, and you should act quickly to stand any chance at rescuing the company. Personal bankruptcy still exists in the UK and can apply to sole traders and individuals.
Case Studies
K2 Technologies Ltd and K2 Thermal Imaging Ltd
Kelly Burton • Service Agency • Administration
Wilson Field has helped secure the sale of two related North East businesses, which developed and manufactured thermal imaging equipment, as a going concern to Cenergem Limited backed by a group of local investors not associated with the current management.
Kelly Burton and Joanne Wright from Sheffield-based insolvency specialists Wilson Field were appointed joint administrators of Darlington-based K2 Technologies Ltd and K2 Thermal Imaging Ltd on 25 July 2016.
The two companies had experienced cash flow problems following to a sharp decline in the demand for their products due to increased global competition in the market over the last 18 months.
The sale, which resulted in six of the current eight jobs being saved, was achieved by Wilson Field, working alongside valuers and asset management consultants Charterfields, who handled a number of inquiries and Mark Wilkinson, insolvency partner at Shulmans Solicitors in Leeds.
Kelly Burton, director and licensed insolvency practitioner at Wilson Field said:
“During the past 12 to 18 months K2 had begun to experience increased competition in the market. Competitors had started to manufacture and sell similar products at a lower price, meaning the company had seen a sharp decline in the demand of products and a resultant shortage of cash flow.
“Our job was to realise a sale of K2 as a going concern to achieve the best return for the company’s creditors. There was significant interest by a number of parties. The resultant sale has also saved six of the eight jobs.”
K2 Thermal Imaging Ltd and its predecessors were involved in the development of three products establishing the company as a lead pioneer in thermal imaging.
The company designed and engineered three main product ranges for extensive use in the marine, firefighting and industrial sectors, allowing operators to enter smoke-filled environments to detect and rescue people with a hands-free application, therefore improving success rates in recovery.
JS Security
Kelly Burton • Other • Administration
All 42 jobs have been saved at a Cheltenham security firm after it was bought out of administration.
Joint administrators Kelly Burton and Lisa Hogg of insolvency and business turnaround specialist Wilson Field were appointed to JS Security on 10 February after HMRC threatened to wind-up the company because of accumulated tax arrears.
The company, which operated from Old Station Drive in Cheltenham, has now been bought out of administration by existing, and associated company, JS Facilities Group Limited of Cheltenham, saving all 42 jobs.
The business will be operated by the existing management team lead by managing director John Search. The total value of the deal is undisclosed but it includes the business and the assets of the Cheltenham based company.
Kelly Burton, director and insolvency practitioner at Wilson Field, which has bases in Leeds and Sheffield, said;
“Unfortunately, the security services sector is very competitive which leads to hourly rate discounting and small margins.
“JS Security accumulated tax arrears which threatened its existence. After discussing the situation with the director, I am pleased that we have found a solution which will see the business continue to trade and also all 42 employees’ jobs transferred to the new company.”
JS Security was appointed the official security provider at Gloucester Rugby in June 2013 for two-years and also won the contract to provide matchday security for the four Rugby World Cup matches at Kingsholm Stadium in September 2015.
The contracts covered match day security, including the hospitality areas, car park security and any additional security requirements.
JS Facilities Group Limited has been running for 15 years and operates throughout Gloucestershire specialising in security services for sectors including commercial, logistics security, construction, events, key holding and alarm response.
Services include remote video monitoring, control room services, lone working monitoring, security guarding, door supervisors, mobile security patrols, event security and first aid training.
Designer Recliners Limited
Kelly Burton • Manufacturing • Administration, Company Voluntary Arrangement (CVA)
A Sheffield furniture manufacturer and upholster has relaunched offering a smaller, more specialised range of products.
Anico Interiors Limited, which included reclining chairs for the elderly, had suffered cash flow problems and issues with profitability.
Designer Recliners Limited, managed by director Nick Wall, has purchased the assets and business of Anico saving all 11 jobs.
Andy Wood and Robert Dymond from Sheffield business turnaround experts Wilson Field were appointed joint liquidators on 8 June and advised on the sale of the 14-year-old company, based on Orgreave Crescent at Orgreave Industrial Estate, as a going concern.
Andy Wood, associate director and insolvency practitioner at Wilson Field said:
“Historically, the company offered a wide range of products but has now streamlined its offer to customers and cut out some unprofitable lines, as well as re-vamped its web site.
“Directors took advice from Wilson Field with the business sold to new company Designer Recliners Limited as a going concern, safeguarding all 11 employees’ jobs. The new company will offer the same service and standards under the same management team but focus on a smaller range of specialised products.”
The company employs skilled staff including upholsterers, seamstresses and cutters and was set up in 2002 by Nick Wall.
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