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.
It’s illegal to attempt to strike off an insolvent company, so to start a liquidation, you should contact us before your creditors take further action.
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.
Help to 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.
FAQs
Company bankruptcy or company liquidation?
Though you may have heard stories of “company bankruptcy” or “companies going bankrupt”, this applies to US-based companies.
In the UK, bankruptcy relates to indebted individuals. A limited company cannot “go bankrupt”; instead, it enters liquidation. The most common insolvent liquidation is a Creditors Voluntary Liquidation (CVL), initiated by directors and members or shareholders. At the end of the process, the company ceases trading, is wound up and struck off the register at Companies House.
Can I liquidate a solvent, limited company?
A company can enter liquidation when it’s solvent or insolvent; its status will determine the liquidation procedure: Creditors Voluntary Liquidation for insolvent companies, and Members Voluntary Liquidation (MVL) for solvent companies.
As with an insolvent company, liquidating a solvent company similarly realises all assets, repays all outstanding debts and liabilities, then distributes the residual monies to shareholders. The company would cease to exist and would be struck off the register at Companies House.
More on Members Voluntary Liquidations
What happens to directors during liquidation?
If directors realise their company is insolvent, they should act immediately to avoid accusations of wrongful trading or trading whilst insolvent. Once directors decide to proceed with a CVL, it means they’ll have more control than being forced into compulsory liquidation, and creditor pressure will stop. As long as the directors haven’t partaken in wrongful trading and the company hasn’t traded while insolvent, they’re removed of all responsibility once the liquidation is complete.
Can directors be held personally liable?
Normally, a limited company’s limited liability protects its directors from being held personally liable for the company’s debts. If the director is found guilty of wrongful trading or the company has traded whilst insolvent, they could find themselves liable. The same applies if the director signed personal guarantees to secure business funding or if you have an overdrawn directors’ loan account.
More on personal liability for company debt
What happens after liquidation?
Once the liquidation concludes, the company’s remaining debts are written off, and if the directors have acted lawfully, they can set up a new limited company after the liquidation concludes. However, they can’t use the same trading name.
More about starting a new company after closing one
Case Studies
Aristocrat Pet Supplies
Kelly Burton • Retail • Administration
The business and assets belonging to a Sheffield online pet supplies company are up for sale. Aristocrat Pet Supplies, a family owned and run business, milled its own feed and seed on-site in Sheffield and has been trading for over 25 years selling agricultural raw materials, livestock, textile raw materials and semi-finished goods.
Sheffield-based insolvency specialists Wilson Field were called into the firm after it experienced increasing pressure and competition online. Andy Wood and Lisa Hogg were appointed as joint administrators for the company on January 26.
Wilson Field is trading the business in the short term with a view to finding a potential buyer for the company based on Holbrook Green Industrial Estate near Sheffield.
Andy Wood, associate director and insolvency practitioner at Wilson Field said:
“The business has encountered increased competition in recent years, principally from discount stores which have reduced margins.
“It has been on the market for several months but has not attracted any significant interest so far. As administrators, Wilson Field is trading the business in the short term to maximise realisations on a reduced staff base of seven.”
Aristocrat, which employed 19 staff, offered a range of pet supplies including dog and cat treats, chews, small animal bedding, wild bird supplies, poultry and aquatic food.
Catering Butchers
Kelly Burton • Leisure & Hospitality • Administration
A previously successful, family-owned and managed catering butchers saw its turnover eradicated by the Covid 19 outbreak.
Following a review of all the options with the team at Wilson Field, the directors decided to appoint WF as Administrators.
Kelly Burton, director and insolvency practitioner at Wilson Field added:
“Like many over the pandemic, unfortunately there were some difficulties encountered as the business struggled to keep up its strong sales. However, we are continuing ro release the assets for the benefit of the creditors.”
Due to a lack of funding, the business unfortunately ceased to trade, however, the Administrators have managed to secure the debtor ledger and a sale of the remaining tangible assets, for the benefit of creditors.
Principal Packaging Ltd
Kelly Burton • Service Agency • Administration
Sheffield administrators Wilson Field has helped save all 14 jobs at a Lancashire packaging supplier and manufacturer after it was bought out of administration.
Administrators Kelly Burton and Joanne Wright from business turnaround experts Wilson Field were appointed joint administrators on 17 February after Principal Packaging Ltd suffered cash flow problems.
The company, based at Pit Hey Place in Skelmersdale, was one of the main independent providers of quality packaging for the retail food industry, and major food and dairy suppliers.
Directors Tracy and Richard Sharratt took early advice and the business was sold to new company Surepac Ltd as a going concern saving all 14 employees’ jobs.
Kelly Burton from Wilson Field said:
“Historically, the company offered a holding service to its customers. This meant that it held a significant amount of stock at any one time, which tied up a substantial amount of cash.
“This created cash flow problems and was exacerbated in the early part of 2016 when the amount available on the company’s funding facility was reduced.
“Directors took early advice from Wilson Field with the business sold to Surepac Ltd as a going concern, safeguarding all 14 employees’ jobs. The new company will offer the same service and standards and will operate under the same management team”.
Principal Packaging, started in 2006, served packaging needs for meat, fish, horticulture and poultry sectors throughout the United Kingdom and Ireland and traded successfully in the early years.
It gained a reputation for being one of the most professional, yet affordable, companies in a competitive market with its high-quality paper, plastic or board packaging, custom print services and high customer service levels.
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