Becoming insolvent is a nightmare scenario for most business owners and directors but there are certain insolvency benefits and measures that can help improve the situation. It’s one big reason why businesses opt to form a limited company, so that the all the risks are taken on by the organisation rather than individuals.
Insolvency occurs when you don’t have enough money or assets to pay your debts either in the short or long term. For businesses, this requires immediate action to be taken. There might be an option to work with creditors until things improve. In more extreme circumstances, the company could go into administration with licensed insolvency practitioners taking over and arranging the disposal of assets.
Another option is to seek liquidation where the company is wound up and the assets sold. This can either be carried out in a voluntary manner, when the directors and shareholders decide the debts can’t be met, or it can be forced onto a company via compulsory liquidation. The latter is often instigated by creditors who naturally want payment for their services.
- Unless you have made a personal guarantee as a director of the company, all the liability lies within the business and not with the individuals who run it. That means, once assets have been sold off, any outstanding debt is likely to be written off.
- The benefit of liquidation includes the fact that any outstanding legal action, for instance from businesses that are trying to get money from you, is halted.
- Staff from the company will also be in a better situation because they will be able to claim outstanding wages or redundancy through the liquidation.
- Contracts such as leases and hire agreements are also terminated once a company goes into liquidation which means no more money is paid unless the affected company makes a claim alongside other creditors.
If you are facing insolvency, then talking to a qualified practitioner certainly helps.