How to Prepare for Liquidation
If you want to keep the costs of company closure down, then how you prepare for liquidation can be important. Absolutely, critical is to gather up the company records that provide details of all of its last three years’ accounts (if trading for more than three years), assets, liabilities, employees and tax details. This will greatly assist you as a director with the speed of the process and avoid a stop-start approach that can hamper the efficiency of going into liquidation.
What Is Liquidation?
Liquidation is the formal process of closing a company, selling off its assets, and distributing the proceeds to creditors. Once a company goes into liquidation, a licensed insolvency practitioner is appointed as the liquidator to oversee the winding-up. The company ceases to trade, staff are dismissed, and directors’ powers come to an end.
Stop Trading Immediately
If the company is insolvent (i.e., unable to pay its debts), you must stop trading immediately. Continuing to trade while insolvent could lead to accusations of wrongful trading, a serious matter that could result in an element of personal liability to pay compensation for the period involved. From the point at which insovlent liquidation is deemed inevitable, a director’s duty is to creditors, not shareholders of the business.
Organise Company Records
One of the most helpful things you can do ahead of liquidation is to gather and organise your company records. This includes:
Recent financial statements
Bank statements
VAT and PAYE records
Loan agreements
Employee contracts and real-time information
Details of any assets and liabilities (including creditor contact information)
Any correspondence with creditors or HMRC
These documents will help the insolvency practitioner get an accurate picture of the company’s financial position, which speeds up the process of preparing the necessary documents to enable the company to be placed into liquidation promptly. This can therefore potentially reduces costs.
Deal with Director’s Loan Accounts
If you have an overdrawn director’s loan account (i.e., you owe money to the company), this will become an asset that the liquidator will seek to recover. It’s important to understand your position here; an overdrawn director’s loan account does not get written off because the company goes into liquidation.
