What happens after you liquidate your company depends on whether the company is solvent or insolvent at the time of liquidation, and how you’ve acted as a director in the time leading up to and during any period of insolvency. If the company is solvent, you can walk away without further issue. However, if the company is insolvent, there is a lot more to consider, including whether you have acted in the company’s best interests and if you’ve signed personal guarantees.
Don’t feel guilty about closing your company
While closing your company can feel like a failure or an admission of defeat, closing it can, in many cases, be the best option. However, if the company is insolvent, with unmanageable levels of creditor pressure, and recovery or restructuring wouldn’t be feasible, you should close the company via an insolvent Creditors Voluntary Liquidation (CVL).
Even if it is solvent, closure might be the best option in the following circumstances:
- Your company has reached the end of its useful life.
- You wish to retire from being a director and don’t wish to sell the company, or have no one to take it over.
- The company has sufficient assets to justify a solvent liquidation.
How have you acted in your time as director?
As the company’s director, you should always act in the best interest of that company and its creditors. During the liquidation, or another insolvency process if you’re not closing your company, a licensed and regulated insolvency practitioner will investigate your actions in the time leading up to and during the company’s insolvency. If they find you have acted within the creditors’ best interests and did what ultimately was best for the company, you are unlikely to face severe, long-term consequences for the company becoming insolvent.
You may face certain consequences if you have committed any of the following, though:
- Signed personal guarantees to secure funding for the business. Unsatisfied personal guarantees can bypass your company’s limited liability protection and make you personally liable for any associated debts.
- Committing wrongful trading and trading whilst insolvent. These mean that you have continued to trade whilst knowing that the company is insolvent and may not be able to deliver what it has promised.
- Committing fraudulent trading, wherein you continue trading through the company with the intent of defrauding customers.
If you’re found to have committed these, you could be disqualified from being a company director, be held personally liable for the company’s debts, and even face criminal charges.
What happens after liquidation?
During liquidation, the licensed insolvency practitioner will investigate your conduct leading up to and during the period of insolvency. If there’s no evidence of wrongful or fraudulent trading or trading whilst insolvent, then after the liquidation is complete, you should be able to walk away from the insolvent company and start a new business, should you wish to.
It may also be possible for you to continue the business through a ‘pre-pack’ administration or liquidation. This involves repurchasing the insolvent company’s assets and continuing the business in a new limited company. There are very strict rules surrounding its usage, especially regarding reusing the old company’s name. You should consult your assigned insolvency practitioner as to whether this is appropriate.
To summarise
If you’re liquidating your company, you shouldn’t face further consequences if you’ve acted in the company’s best interests in your time as director and in the lead-up to and during any period of insolvency. However, there are situations where you could be held personally liable for the company’s debts, face disqualification from being a director, or even face criminal charges, depending on the severity of the offence.
