Why a Business Should Pay for its Liquidation?

Everybody loves a bargain and the best bargains are those that you don’t have to pay for at all!

There are whole apps and websites dedicated to finding bargains and free or inexpensive deals and while the majority are genuine there are also a lot that have hidden costs down the line.

It’s the same for business services too. Every director loves a bargain but if something seems free and too good to be true then it probably is.

One example is when it comes to closing a business down.

A professional liquidation like a creditors voluntary liquidation (CVL) or members voluntary liquidation (MVL) cost money because they have to be overseen by a licensed insolvency practitioner.

For the money they cost, the business receives a professional service with advice and support at every stage as well as legal compliance and protections.

Now the threat of a freebie can be very persuasive especially in these difficult economic times.

So a business owner that hears about company dissolution or striking off might think – “well if I can close a business down this way, for free, why should I spend money on a liquidation instead?”

There are several reasons why but one of the main ones is down to the prospect of a directors investigation.

In a liquidation, the liquidator has a legal duty to report to the HMRC on how the directors acted in the lead up to the closure.  If, as the majority do, they fulfilled their statutory duties and did everything they could to keep the business going with well kept records to underline their version of events, then they will have nothing to worry about.

Even if they took a couple of decisions that didn’t work out, they will be able to explain these in person to a liquidator, spell out their rationale and argue their case in a reasonable and fair manner.

Debt Management

None of this applies to directors who try to use the cheap route of dissolving their company if it has any outstanding debts.

The rules are explicit that no company with debts can be struck off in this manner although it doesn’t stop some directors from trying to avoid their debts and obligations and closing the business down in this method.

A new law that was passed now makes this increasingly precarious for directors who try to dodge their debt.   The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill allows HMRC and the Insolvency Service to investigate dissolved businesses going back several years to see if there are any inconsistencies.

If there are other offences such as taking money out of an insolvent business can be proved then the directors leave themselves open to sanctions including fines, disqualification and thanks to the new bill – being made personally liable for any outstanding debts to creditors that would have been written off in a liquidation.

Business Secretary Kwasi Kwarteng said: “We need to restore business confidence and people’s confidence in business.

“This is why we won’t hesitate to disqualify directors who deliberately leave employees and taxpayers out of pocket. Extending powers to investigate directors of dissolved companies means those who have previously been able to avoid their responsibilities will be held to account.”

There are several other good reasons why directors should choose to pay for a professional liquidation if they’re closing their company down.

These include being able to choose their own liquidator, helping them work through any outstanding personal guarantees or directors loan accounts, having the liquidator expedite any redundancy claims and also handling all the other administrative tasks that come with a formal liquidation.

Consultation from Expert

The best advice before it comes to choosing a method of closing the business down is to take advantage of a free initial consultation from an experienced company such as Business Rescue Expert.

They will be able to advise what the best course of action for the business could be including other processes such as administration or a CVA which means the company can continue trading while restructuring and keep going instead of ultimately closing.

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