When advising directors of insolvent companies, we are often asked: “why can’t I just wind up the company myself – it’s pretty straightforward, isn’t it? All you have to do is sell the assets, do a few deals and pay the creditors what you can”. Well, that may be fine for small companies which have ceased trading with few or no assets and negligible debts: in these cases dissolution is probably the best way forward although it is not really intended for insolvent companies.
Most companies’ affairs are, however, more complicated than that and it is potentially dangerous for the directors to attempt a “DIY liquidation”: there are many pitfalls and potential risks if they get it wrong. Only a licensed insolvency practitioner (“IP”) may legally act as liquidator of a company. IPs go through many years of training and exams before they are let loose on the public, and for very good reason: the law and practice are far from simple. For example, what happens if a director accidentally leaves out a creditor and pays out all the money? What happens if HMRC suddenly raise liabilities when all the funds have been distributed? The directors may be held personally liable, that's what!
Most directors are not experts on asset disposals – so how do they know the right way to realise the company's assets and get the best price? What protections will they build into any sale to prevent come-backs if the sale goes wrong? Do they know how to deal with any tax arising on the disposal of the assets? Do they know whether it's ok to pay off preferred suppliers or employees or the bank and leave some creditors unpaid? If they get any of this wrong they risk personal liability.
In a DIY liquidation, directors and other employees may miss out on their entitlements to claim arrears of pay, holiday pay, pay-in-lieu of notice or redundancy pay, which could amount to many thousands of pounds. These payments can be claimed from the Redundancy Payments Fund - but only if there is a formal insolvency.
To summarise, DIY liquidations and dissolution are fine for small, dead companies with negligible assets, no employees and low levels of debt. Any other situation should be dealt with by an IP to avoid directors falling foul of the legislation and being hit with a personal bill for many thousands of pounds. After all how many directors would feel confident about preparing their company's accounts and doing the tax computations themselves; or entering into litigation or selling a property without a lawyer? The position is no different. Indeed, insolvency law and practice are complicated and extremely specialised, full of potential risks and require years of experience to master. Business owners who think their business is or may be likely to become insolvent, should take advice from a licensed insolvency practitioner. At Marshman Price we have three local and highly experienced IPs who can provide the most appropriate guidance to anybody (personal or corporate) in financial difficulty.
At Marshman Price, we offer a free one hour initial consultation to help business owners identify what their problems are and offer workable solutions. Call Alan Price on 01933 270918, Gary Pettit on 01604 926070 or email email@example.com in full confidentiality.
Advice I give here is free, without liability on my part. It is not a substitute for formal advice.