Lisa HoggView Profile
So, your company is deep in debt and on the verge of “going bust”. It happens to companies big and small. But “going bust” doesn’t necessarily mean the end of your company if you act quickly.
What happens if my company is going bust?
“Going bust” can have several meanings. First and foremost, that a company has insufficient funds coming in, or in its reserves to cover its outgoings. When this happens, a company is insolvent. From this point, several scenarios are possible.
Do I have to go bankrupt if my company is going bust?
If your company “goes bust”, you might assume it has to go bankrupt.
Talk of companies going “bankrupt” is common. However, this is an American term, referring to Title 11 of the United States Code; the code of American bankruptcy law. The UK equivalent is liquidation, wherein an insolvent company, often suffering from creditor pressure or lack of funds, can no longer continue operating.
Bankruptcy in the UK
Bankruptcy does exist in the UK, relating to individuals and sole traders, who can go personally bankrupt. While the word “bankruptcy” strikes fear in business owners and individuals, it can be a viable way to clear your personal debts where repaying them is unfeasible.More information on individual and sole trader debts
While a liquidation shouldn’t personally affect the company’s directors, thanks to limited liability protection, it can affect them if they’ve acted unscrupulously. During a liquidation, the licensed insolvency practitioner (IP) will investigate the company’s history and files. If they find evidence of wrongful trading or trading whilst insolvent, the director could face further action. They may even become liable for the company’s debts.
What happens after my company goes bust?
While insolvency, or “going bust” doesn’t automatically mean your company has to close, what can be done to save it depends on its circumstances.
If the company has debts, creditor pressure could be a problem. Creditors can chase your company for what it owes, and if reminders don’t work, they can pursue you via County Court Judgements (CCJs), which can even result in bailiffs visiting.
If you become aware your company is on the brink of “going bust”, or is already insolvent, you should act immediately. The sooner you act, the higher the chances of saving the company.
How can I stop my company going bust?
To stop insolvency ending your company, you should contact us. Our initial advisors can assess your situation and help you decide the best course of action to save your company.
The business could still be viable without its debts. In which case, a Company Voluntary Arrangement (CVA) can help you pay back the company’s unsecured debts in monthly instalments at an affordable rate.
For deeper rooted problems, administration may be more appropriate. Administration involves an IP taking control of the company, making the necessary changes to remove the unprofitable parts. Creditor pressure stops while the IP makes the necessary changes to restructure or sell the company.More company recovery options
Closing an insolvent company through liquidation
If the debt is so substantial that the company cannot feasibly continue trading, closing the company through liquidation might be the best option. Creditors Voluntary Liquidation (CVL) involves an IP taking control of the company, pausing creditor pressure, and closing the company in an orderly manner.More information on Creditors Voluntary Liquidation
While it can be worrying to find your company “going bust”, it doesn’t have to end in liquidation. In the legal sense, bankruptcy is unlikely to become part of a company insolvency, unless the company’s directors are found guilty of trading whilst insolvent or wrongful trading. Acting fast increases the chances of saving the company and opens up more potential options.