Two options available to a business that requires financial assistance are business rescue (i.e. Administration) and winding up (i.e. Liquidation). Business rescue usually involves a company receiving assistance in the form of additional finance or time to repay its debts to enable it to continue to trade. In a Liquidation the company would stop trading and company assets would be sold off before the company is finally dissolved.
If you have been wondering which option is best for your business, this article will outline some of the other differences between them.
Reasons To Enter Into Business Rescue
Business rescue can be a feasible option if your company is dealing with repeat warnings or demands by HMRC or other creditors. It is also an option when the threat of compulsory liquidation is high.
Reasons To Enter Into Business Liquidation
Liquidation may be an option for you if you have no viable alternatives to pay your business debts, but have assets that can be sold to pay something towards your creditors.
Objectives And Advantages Of Business Rescue
Business rescue, if available, usually offers a better chance of a successful outcome for creditors when compared with business liquidation. This option can also be utilised to allow time for valuable property to be realised and the proceeds distributed to those creditors considered preferential or secured.
An advantage of business rescue is that creditors are not permitted to take action against the business unless the court permits them to do so.
Appointment Of Administrator
An administrator is the person who runs the business rescue process. They can be appointed by the company, the directors, a floating charge holder or the creditors.. The administrator is not only charged with carrying on the business of the company while assets are realised, but can also appoint and remove directors.
Potential Outcomes Of Business Rescue
Several outcomes are possible as a result of administration. A company may pay its debts and be handed back to its directors and management to carry on with the business. It may enter into liquidation, or if there is nothing to give to creditors, may proceed straight to dissolution.
Objectives And Advantages Of Liquidation
Liquidation is a method of closing a business. Members’ voluntary liquidation involves a business that is in a solvent position, while creditor’s voluntary and compulsory liquidations are chosen for insolvent businesses. The objective of liquidation is to wind up the company and realise the assets in order to pay creditors, and then completely close the business.
Appointment Of Liquidator
A company that has chosen liquidation will need to contact an insolvency practitioner. The liquidator has a duty to maximise the company’s realisations, for the benefit of the company’s creditors.. The liquidator also has a duty to perform an investigation into the directors’ conduct.
Potential Outcomes Of Liquidation
A business owner whose company has entered into liquidation can still start another business if they wish, with no past debts to carry with them into their new venture.
Choosing Which Route Is Best For Your Business
Making the choice between business rescue and liquidation depends on your company’s total amount of liabilities and debts owed. If this amount is greater than the fair market value of your company’s assets, your business may be insolvent. The same is true if you’ve had legal action taken against you by one or more creditors, or you are not able to pay your debts as and when they fall due.
Your best option, when considering which route is best for your business, is to obtain the advice of a licensed insolvency practitioner. Call our team now for more information.