The drawbacks of dissolving your company instead of liquidating it

The drawbacks of dissolving your company instead of liquidating it

September 21, 2018 by Sandra

Unfortunately with business, as in life, things don’t always go quite to plan. No one sets up a company with the express intention of having it slowly fail, but businesses do often fail. It’s unavoidable sometimes. It can be the case that the issue lies with mismanagement, however there are often external forces at work and variables outside of the control of those running it. Whatever the reasons, occasionally the best route available to the business owner is closing the thing down.

If you run your own company and have found it tough of late, you’re not alone. Nor are you the only one out there who may be considering ending their business. Sometimes, despite all the hard work and determination, the best course of action is to wind a company down and fully draw a line under it.

If you find yourself reaching this conclusion, you have options ahead of you. You can relieve creditor pressure by closing your operation in one of two main ways. Each has its own advantages and disadvantages, but if you want to do things right, there really is only one option available to you…

Your two paths are:

  • Entering into a Creditors’ Voluntary Liquidation (commonly abbreviated to 'CVL'), which involves appointing a licensed insolvency practitioner like us to step in, investigate, realise and then fairly distribute your assets amongst your creditors.  
  • Alternatively an application for dissolution may appear appealing step (it’s extremely inexpensive), whereby the Registrar  strike’s off the company as existing entirely.

You need to be careful when making your decision. Dissolving a company is only really the best course of action when the business is no longer serving a purpose. Dissolution is not recommended as a solution for organisations that are failing financially. In fact, if it can be proven that you've failed to inform any of your creditors of your dissolution application, you could very well be prosecuted and barred from future directorships for anywhere up to 15 years.

There’s very little chance that your application for dissolution will be approved, anyway. That’s if you owe money. If you’re debt free, then sure - dissolve away. But if it’s viability and finances causing you to wrap things up, you need to avoid dissolving your firm at all costs.

Let’s say your application slips through the net, though. That doesn’t mean - necessarily - that the company is no more forever. If a creditor contacts the court and alerts them to an outstanding payment or series of payments, they have the power to effectively resurrect the business. The creditors has up to 20 year to make the application to court. The company will be restored at Companies House and the creditor will be free to restart debt recovery proceedings. Formally liquidate your business however and it’s closed down for good, with no argument.

Company dissolution is also a bad idea if you plan on making a director redundancy claim. The current average for such a claim is around £12,000. Dissolve your business and you will not be eligible for such a claim. Enter into a CVL however and you will be.

Creditors’ Voluntary Liquidations can be fully handled by a qualified and experienced insolvency practitioner like us, taking all the hassle out of the process and organising it all perfectly and with expertise. If you’re in trouble with financial viability, don’t make the mistake of attempting to dissolve your company. Speak to us about a CVL.

Filed Under: liquidation, Disolution

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