Understanding Bankruptcy and Liquidation
Bankruptcy and liquidation are ways of dealing with debt that can't be repaid.
Bankruptcy only applies to individuals (not companies).
When you become bankrupt, you are declared by law to be unable to pay your debts.
It will get rid of most of your debts and debt collectors will stop contacting you.
Bankruptcy lasts for 3 years and can affect your financial future, so it should be considered as a last resort.
Liquidation only applies to companies.
When a company can't pay its debts and goes into liquidation, it stops operating.
Company assets are sold in an attempt to pay off the debts.
Bankruptcy only applies to individuals (not companies).
When you become bankrupt, you are declared by law to be unable to pay your debts.
It will get rid of most of your debts and debt collectors will stop contacting you.
Bankruptcy lasts for 3 years and can affect your financial future, so it should be considered as a last resort.
Liquidation only applies to companies.
When a company can't pay its debts and goes into liquidation, it stops operating.
Company assets are sold in an attempt to pay off the debts.
How they apply to your business
If you operate your business as a sole trader or partnership, you or your partners can become bankrupt as individuals (the business itself doesn't become bankrupt).
If you operate your business as a company and it has unmanageable debt (known as being insolvent), it cannot continue operating. The three most common options are liquidation, voluntary administration and receivership.
If you operate your business as a company and it has unmanageable debt (known as being insolvent), it cannot continue operating. The three most common options are liquidation, voluntary administration and receivership.
Ways to Deal with Debt for Companies
The first thing to do is to assess your situation and give you advice on how to manage the debt.
Unlike sole traders and partnerships, companies are independent legal entities.
Different arrangements are used to manage company insolvency (unmanageable debt).
Unlike sole traders and partnerships, companies are independent legal entities.
Different arrangements are used to manage company insolvency (unmanageable debt).
Some Options may be to
Asking your creditors (people or businesses you owe money to) to give you more time to pay your debt, or accept a smaller payment to settle the debt.
Voluntary Administration
If your company goes into voluntary administration, an administrator is appointed to take control of it. The administrator must not be a part of your company. They'll try to either:
- save your company or your company's business
- put your company in a position where it can best pay off its debts, without going straight into liquidation.
Liquidation
If your company isn't saved by the voluntary administrator, it will go into liquidation.
Liquidation involves winding up the company so that it can repay debts (even if it can't pay the full amount).
A person who isn't a part of your company will be appointed to take care of the winding up process.
Liquidation involves winding up the company so that it can repay debts (even if it can't pay the full amount).
A person who isn't a part of your company will be appointed to take care of the winding up process.
Receivership
Your company may go into receivership if a secured creditor decides to appoint someone (known as a receiver) to collect and sell the company's assets, in order to pay off the debt the company owes them.
A secured creditor is someone who has secured a debt owed by the company through a claim to company assets.
Different conditions may apply depending on the agreement with the secured creditor (for example, in some agreements, they are only allowed to sell certain assets of the company to pay off the debt).
Your company can be in receivership and voluntary administration at the same time.
A secured creditor is someone who has secured a debt owed by the company through a claim to company assets.
Different conditions may apply depending on the agreement with the secured creditor (for example, in some agreements, they are only allowed to sell certain assets of the company to pay off the debt).
Your company can be in receivership and voluntary administration at the same time.
How employees are affected by Bankruptcy and Liquidation
If your business has closed due to liquidation or bankruptcy, there may not be enough funds to pay your employees their entitlements.
Under the Fair Entitlements Guarantee, eligible employees may be able to claim certain unpaid entitlements such as wages, leave, and redundancy pay.
Download a FREE information pack on
Personal Bankruptcy and Liquidation of a Company
Information for people In Business
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