Business Bankruptcy

Business bankruptcy refers to the liquidation of a business that cannot pay its creditors. In general, the sale of an insolvent company’s assets is necessary to repay outstanding debts. According to figures published by the Office for National Statistics, 3978 companies filed for bankruptcy during the second quarter of 2013. In the first quarter of 2013, business bankruptcies stood at 3619. For an entrepreneur, a bankruptcy is not easy because it means the end of one’s efforts to build a successful business. Here is some good business bankruptcy advice to help you avoid such a situation.

An Overview of Business Bankruptcy

It is important to note that there is no law that allows limited liability companies in the UK to file for bankruptcy. The term only applies to trading entities run by sole traders, partnerships, or individuals. When people talk about business bankruptcy, they are likely referring to company liquidation or administration; they are not actually filing for bankruptcy.

How to File for Bankruptcy

In the event a company is unable to meet its financial obligations, the owner(s) can opt to wind it down. There are two main ways of winding down an insolvent firm: Creditors Voluntary Liquidation (CVL) or Members Voluntary Liquidation (MVL). Out of the two ways, CVL is by far the most widely used insolvency mechanism because entrepreneurs can dispose failed companies without becoming personally liable for its debts. Small or sole traders can opt for an individual voluntary arrangement (IVA).

Bankruptcy Process

In order to wind down a trading entity, one should consult a liquidation expert in order to determine the current trading positions and cash flow. After this, the firm’s directors will meet to discuss available winding down options and vote to liquidate the business. The company’s shareholders as well as creditors will also meet to deliberate on the impending insolvency.

It is important to note that most bankruptcies require the approval of creditors who own an insolvent business’s debts. Furthermore, a professional insolvency practitioner (PIP) is usually in charge of the process of liquidating a company. In most cases, a CVL takes place if a trading entity does not have sufficient assets to pay off its creditors. On the other hand, a Members Voluntary Liquidation takes place when the value of a company’s assets is sufficient to pay all its creditors. The beauty of a voluntary liquidation is you get to choose the insolvency practitioner of your choice.

An IVA involves filing an Interim Court of Order at the nearest County court to stop creditors from taking legal action to recover their money. This includes creditors such as Customs & Excise and the Inland Revenue.

All in all, it may be necessary for an entrepreneur to preside over the liquidation of his/her business. In such an event, it would be wise to seek advice from an insolvency expert to ensure compliance with all the relevant laws. At Sharma & Co. our team will provide sound business bankruptcy advice. Business liquidation options include Members Voluntary Liquidation and Creditors Voluntary Liquidation. Small sole traders should consider an Individual Voluntary Arrangement. Read More…