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If things have gone too far to permit any recovery or if there is no will on the part of the directors for the company to keep going it may be time to wind up the company. Liquidation and winding up means the same thing – in essence a closure!

A liquidation can in some cases be managed to allow an orderly closure, but it is equally likely that there has been or is about to be an abrupt closure of the business. Often directors have reached the stage where redundancies are needed and the company cannot afford the redundancy payments, cannot wait for government help with redundancies and the company simply has no cash flow to be able to continue placing necessary orders.

The insolvency practitioner will advise on what is needed to bring about the closure. This will involve a creditors meeting at which the directors will make a report to the creditors. The report will explain why the winding up is necessary and will set out the company’s statement of affairs, i.e. a statement of the then current financial position of the company showing the deficit or shortfall to the creditors that is likely to result following the winding up of the company’s affairs.

The directors will need to give assistance to the liquidator and it is their responsibility to make sure that all relevant information is made available. The shareholders will pass the resolution to wind up the company and will appoint a liquidator. Provided the creditors support that appointment the liquidator will take office on the day of the creditors meeting.

The liquidator is responsible for collecting in the company’s assets, receiving claims of creditors and distributing any monies realised amongst the creditors after the liquidation expenses have been met.

Liquidation may seem like the last straw, but it can often be the simplest way forward for directors.

As long as things are thought through, the directors can, where funds allow, buy from the liquidator the assets of the business provided proper advance notification is given to the creditors of their intentions and the proper price is paid.

In liquidation it is possible for the directors to close the existing company and bring a new company in to being on the same day. There has to be notification to creditors, which is especially important if the directors wish to use a name for the new company that is similar to the one going in to liquidation. Normally this will not happen on the same day but will in either case involve a completely new company taking on the assets of the old company for fair value.

In all cases where the directors hope to maintain the business in the future it is important to ask whether current suppliers will continue to supply the new business and whether there will be bank facilities made available where required. Additionally will utility or other suppliers insist on deposits before agreeing to supply to the new business and will HMRC impose any additional restrictions.

There are many issues to be considered.

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