Once your limited company is liquidated, the company ceases to exist. What happens after you liquidate your limited company depends on your actions as a director and whether the company is solvent or insolvent.
That solvent position will influence what could happen after liquidating your company.
Understanding the difference between a solvent and insolvent liquidation
Both solvent and insolvent companies can enter a liquidation procedure. While liquidating a solvent company might seem counterintuitive, a solvent Members Voluntary Liquidation (MVL) can be more efficient, offer more benefits if it has sufficient assets, and can be faster than striking the company off through a dissolution. It is often used where directors don’t wish to continue trading through the company, either if they plan to retire, or if the company has come to the end of its useful life.
By contrast, a company enters an insolvent liquidation when it is struggling to repay its debts and to deal with the accompanying creditor pressure. Directors may have attempted to manage the debt through other insolvency procedures such as a Company Voluntary Arrangement (CVA) or administration.
Will I face further action if my company was insolvent?
As part of an insolvent Creditors Voluntary Liquidation (CVL), which is a formal insolvency process, the licensed insolvency practitioner will investigate your actions in the time leading up to and during the company’s insolvent period. If, during that time, you acted in the best interests of the company and its creditors, you shouldn’t face further consequences.
A company’s finances are separated from those of its directors’ by limited liability protection, so the company’s debts won’t affect the director personally.
However, depending on your conduct as a director, there can be situations where this liability could be bypassed. These situations include:
- Trading whilst insolvent
Wherein the company continues to trade while the directors know that it is insolvent. - Wrongful and fraudulent trading
These involve deliberately defrauding customers and deceiving creditors. If found guilty of these, you could face a directorial ban and potentially criminal charges. - Personal guarantee
While securing funding for your company, the lender may require personal guarantees. This protects the lender from financial losses if your company can’t repay. If your company becomes insolvent, these personal guarantees can bypass your company’s limited liability protection and make you personally liable for the associated amount.
Can it keep me from starting another company?
Liquidating a company, even if it’s insolvent, won’t prevent you from starting another. If you’ve fulfilled your duties as a director, you are free to start another company.
The only time you may be restricted from doing so is if you’re found to have committed the actions listed above; you may receive a ban from acting as a company director, either in a newly established company or an existing one. Depending on the severity of those offences, this ban could be for a set number of years, or an indefinite length of time.
To summarise
Both solvent and insolvent companies can undergo liquidation. A solvent company may close if there is no further need for it or if you wish to retire from being a director. Closing an insolvent company may be the best way forward if recovery processes have failed. Insolvent liquidations involve investigation by the insolvency practitioner, and if you acted outside of the company’s best interests, you could be held personally liable for the company’s debt. You could even face a director’s ban, preventing you from setting up any more companies.
