What are the Pros and Cons of Voluntary Liquidation?

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Pros and Cons of Voluntary Liquidation

Voluntary liquidation is the term used when a company decides to cease trading of its own accord. It is usually implemented as a final measure to settle outstanding debts by selling assets and property.

The process can manifest via two methods, members’ voluntary liquidation and creditors’ voluntary liquidation, but the outcome will still be the same. A specialised liquidator will be appointed in order to dissolve the company and oversee the whole process, usually at the authorisation of the creditors.

As opposed to compulsory liquidation which is forced upon the company by the courts, the voluntary route offers a bit more freedom and control for the directors. There are some advantages and disadvantages to consider when taking this approach however.

Pros of Voluntary Liquidation

A compulsory liquidation can pose additional problems after the stress of insolvency. Investigations by the government and HMRC will examine how directors acted during this period, looking for any evidence of wrongdoing. Dissatisfied creditors may put pressure on these liquidators to highlight even the smallest of mistakes.

However, when voluntary, company directors have more say over the liquidation process. They can appoint a liquidator of their own choosing, perhaps someone they’re familiar with and can trust. This will help protect them from any harsh wrongful trading accusations and even personal liability claims.

When the commencement of liquidation begins, there are many benefits for the company and its employees, not least the relief it can bring. Firstly, outstanding debts are written off and legal action against you is halted. Monies owed to creditors and staff will be covered by the sale of assets, if possible, and as the director you are now free to continue with further business ventures.

The stresses of the bankruptcy process will be over, saving you the worry of dealing with disgruntled creditors and pressure from the courts. Voluntary liquidation also means you will avoid distressing court appearances.

Cons of Voluntary Liquidation

Naturally, the onset of liquidation will see the termination of all commercial trading and the winding up of your company. It is a difficult decision to make, often affecting the lives of many people associated with the business. All assets will be sold to help pay debts owed to creditors.

With a voluntary liquidation, it is your responsibility to arrange the appropriate meetings and appoint a liquidation officer. The costs of such a process can stretch into the thousands, depending of the amount of work involved.

Furthermore, your conduct will still be investigated by the liquidator and no matter how lenient they may be, you can still be prosecuted for wrongful trading if applicable. Some directors will have made personal guarantees on loans or overdrafts also; these can enforced by the creditors as soon as the liquidation process in initiated.

The pros and cons of voluntary liquidation – a summary

Liquidation isn’t a nice experience for anyone associated with the company to be put through. However, with the right advice from experienced consultants, losses will be minimised and the stresses of such a difficult period can be made that bit easier.

If you’d like to discuss voluntary liquidation in more depth don’t hesitate to get in touch with our friendly team.

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