Company Hangover: How Liquidation Could Help Your Business

While liquidating your company can seem very much like the end, it doesn't have to be the death of your business

Company Hangover: How Liquidation Could Help Your Business

Many directors see liquidation as the death knell of their business, yet by changing our view point slightly, we can get a lot more from the whole process.

Take a deep breath and have a long, good look at your old business – this is the beauty of liquidation. You get breathing space, something you probably haven’t had in a while. Liquidation can be a crucial part of a restructuring process and could mean you go on to a very successful business career.

Before we get into the guts of this, I would like to say that if you have a decent agent handling your liquidation, this should all be covered by them. They will oversee most of this to make sure it’s all within the law.

As with most things, it is a lot easier if you do these BEFORE the liquidation is in place.

A change of view

Like many directors, you may well see the business and the company as the same thing. Well they are, aren’t they?

Actually, no. 

The business is the model for making money, and the company is the vehicle for implementing that.

As you only liquidate the company, and not the business, this means that you can go back to your business model, have a look at where things went wrong and put a new company in place to implement the new improved business model.

Liquidation does not mean an automatic ban on you being a director again. Most directors who liquidate a company will start a new business straight away.

Dealing with any company hangover

Unless you have personally guaranteed a debt, then that debt will die with the company – that’s the whole point of being a limited company after all. That includes the tax man – despite what you may have heard.

However, there are a couple of things which may cause an issue if not dealt with correctly.

Normally, a decent liquidation agent will go through these with you before the liquidation (I know some don’t – but a good one will).

Personal guarantees

A personal guarantee is just that – you will pay the company debt if it is unable to.

As the company has been liquidated, then it won’t be paying that debt which means you will have to pay it. However, the good news is that most businesses that ask for personal guarantees (banks are the main ones) are more than happy to either agree a full and final settlement of the debt, or accept a repayment plan, which we will come back to in shortly.

Overdrawn loan accounts

This is probably where most directors end up with an issue if it’s not handled in the right way. A director’s loan account is where a director has taken more money out of the company than they were due, it’s a common issue and quite easy to remedy.

Much like the personal guarantee, most sensible liquidators will take a pragmatic view on the loan account and come to an arrangement to repay, or a full and final settlement.

It is important when looking at how to repay either a loan account or a personal guarantee you consider them together; you do not want to make an offer of repayment on one to find that you can’t repay the other.

New beginnings

So you’ve got your bright new company. How do you give it the best start possible?

The assets of the old business would probably help – after all, it would save you having to get it all over again. If only there was a way you could buy the assets of the old company, cheap and on favourable payment terms.

Well the good news is, normally is. Although this is much better done before the liquidation process is completed, and again, a good agent will sort this for you.

The assets of the company will be sold, and the proceeds go to the creditors (they have to get some money back if there’s assets). A sensible liquidator will avoid any unnecessary cost and sell it to the directors or the new company. They can accept what’s know as a ‘deferred payment’. Which means you pay for the assets over time, from the profit of the new company.

This can also apply to ongoing contracts, which can be purchased as well intellectual property and trading names.

Financing a new company

It always comes as a surprise to directors that there is finance available for ‘phoenix’ companies. I will just cover the main two here.

Invoice Finance

If you raise an invoice for your work, then you can generally get up to 95% of that money the next day of raising the invoice (no more waiting around for 45 days for it). Some invoice finance providers will lend a new company against future invoices as well, which can be helpful.

Asset Finance

A little shorter term than invoice finance, it really is only intended for an initial payment and thats it (unless you buy more assets you haven’t anything to secure future finance against).

You can off course sell any surplus assets from the old company that you don’t need, provided you have bought them first. As the assets are valued at ‘fire sale’ value and have intrinsic costs for removing them and auctioning them, you can often buy them for much less than even the wholesale value. If you know anyone that is looking for that sort of assets (in a similar industry to you), you can then sell these on for a profit.

If liquidation is handled correctly it can provide an excellent opportunity for a business to succeed long term. To give yourself the best chance of future success, you should try to:

  • Negotiate to pay any personal liabilities over time for an affordable amount
  • Negotiate to buy assets over time
  • Purchase any profitable contracts from the old company
  • Look carefully at what caused the issues in the old company, and put measures in to make sure they don’t happen again.

Damian Appleby has been advising insolvent companies for almost 25 years, having worked with some of the largest and smallest Insolvency Practices in the UK, currently working at Zennet Solutions.

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