Sunday, August 26, 2012

Liquidation Doesn't Have To Destroy Your Business

Several companies eventually struggle to deal with outstanding debts or have suffered due to economic climate, at which point the director/directors may decide that the most suitable option is to close the business. This is known as Creditor's Voluntary Liquidation, it basically involves the creditors saying yes to liquidate the assets of the business and have a share to shrink their loss.

To facilitate the liquidation an insolvency practitioner is appointed who will ensure the assets in the company are valued at the best price and then marketed to the highest bidder. At this time there's absolutely nothing to stop a director of the original business setting up a new business and bidding for some or all the original assets which may be reused. Essentially this allows all the directors of the business to set up a brand new company and continue trading minus the old company's debt.

This can work very well for some businesses to start with considering this option, the actual directors of a company must ensure that they'll avoid accusation of wrongful trading from the liquidator of the original company. If the practice of some of the directors is called into question they may face legal action and could acquire some of the old company's debts.

If a director is trying to purchase the assets of a liquidated company there is no guarantee that the liquidator won't sell them to a different bidder. A good way to avoid this scenario would be to agree a 'pre pack liquidation' process, also known as 'Pheonixing' which involves a predetermined agreement with the liquidator before the liquidation process.

Liquidation in this particular fashion is often considered a quick-fix solution to elude debt however the process will only be considered if the company will crash regardless. If a company does fail, the creditors will lose out anyway and most companies will try and avoid further job losses and end of trading. Businesses that are healthy but, due to circumstances outside their particular control, have fallen on hard times will benefit from this process.

For more information check out: Finance7

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