If your limited company finds itself in debt, it can indicate more significant problems, and the business may not even be viable going forward. While there are options that allow companies to recover from their debts, with such a bleak outlook, can you walk away from a limited company with debts?
Company debt and insolvency
Companies can get into debt in multiple ways. For example, a sudden and unforeseen change in circumstances or societal trends can mean a once viable and profitable business is no longer so. It could also be due to an increase in outgoings or the loss of a high or regularly paying client. Whatever the reason for the debts, if the company can’t repay them when the payment dates fall due, it may be insolvent.Is my company solvent or insolvent?
Can an insolvent company recover from its debt?
Closure isn’t the only option for insolvent companies. Depending on the company’s circumstances, you may have several options available. These options can include repaying an affordable portion of the debt in monthly instalments while continuing to trade. You could also move to restructure the company via administration, making the necessary changes to keep it running. Again, creditor pressure would be frozen for the duration of a formal insolvency arrangement.More on company recovery
How can I close an insolvent company?
If the company is insolvent and recovery isn’t an option, you can still close the company down and walk away. You should take the necessary steps to close the insolvent company through a voluntary liquidation as soon as you become aware it cannot recover.More on company closure
How we can help
If you want to walk away from a limited company with debts, speak to us today. We have a team of licensed insolvency practitioners with years of experience in dealing with insolvent companies of all sizes, helping them recover or close in an orderly manner. Our initial advisors can provide free, impartial advice based on your circumstances with no obligation.
- Repaying via a formal repayment arrangement
If you wish to repay your company’s debt at an affordable rate, you can apply for a Company Voluntary Arrangement (CVA). A CVA is a formal insolvency arrangement that allows the insolvent company to continue trading while repaying the debt it can afford. All creditor pressure is suspended for the arrangement’s duration. CVAs usually last five years, and at the end, all remaining unpaid debt is written off.
More on Company Voluntary Arrangements
- Restructuring via administration
If just repaying the debt won’t alleviate the problems, you can put the company into administration. Doing so pauses all creditor pressure and protects the company from legal action. During the administration, a licensed insolvency practitioner takes control of the company, making the necessary changes to make it profitable and appealing to potential buyers.
More on administration
- Closing via a voluntary liquidation
Sometimes it may not be possible to trade out of the insolvency or restructure the company back to profitability. If this is the case, you would be better off closing the company voluntarily. A Creditors Voluntary Liquidation (CVL) allows a company to close in an orderly manner, allowing employees to claim redundancy pay. It also allows you, as director, to walk away from a company with debts.
More on Creditors Voluntary Liquidation (CVL)
Companies can get into debt for a number of reasons. Should you find yourself unable to repay your company’s debts, you can choose to initiate a recovery arrangement or walk away from the company. Your options may vary depending on the company’s circumstances and the path you decide best to take. Whatever you choose to do, you should act quickly to avoid the decision being taken out of your control. Speak to us for free, impartial, non-obligatory advice tailored to your company’s circumstances.
Can I start a new company after closing the old one?
Under normal circumstances, directors of limited companies that have gone through liquidation can start a new limited company or act as the director in an existing one. However, if the liquidator finds evidence of wrongdoing during or before the insolvency, or finds you’ve failed your directorial duties, you could face charges of wrongful or fraudulent trading. Possible penalties include being disqualified from acting as a director in a limited company for up to 15 years.
What can happen after liquidation
If I walk away, will I be personally liable for the company’s debts?
Limited companies provide their directors with limited liability protection. This protection separates the company’s finances from your personal finances, protecting them if the company enters financial difficulty or insolvency.
However, there are scenarios where this limited liability can be bypassed, rendering you personally liable for your company’s debts.
Personal liability for company debt
What can I do if I want to liquidate my company, but my business partner doesn’t?
If you’re one of two or more directors in a single company, all must be in agreeance that the company needs liquidating before the process can go ahead. If, for example, a company has two directors with a 50/50 share in the company, both would need to agree to liquidate before the process could go ahead. A director dispute can arise if the directors do not agree on a way forward. There are ways to break this deadlock; one director could buy out the other’s share, one could resign, or take the matter to court if they cannot come to an agreement.
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