When a company is insolvent, the directors of a company are under a duty to protect the interests of the company’s creditors. Directors can therefore be liable for the actions they take before a company stops trading and also during insolvency. This includes:

(a) Wrongful trading If directors continue to run a business and incur further credits and debts despite knowing there was no way of the company avoiding insolvency, they may be liable for wrongful trading.

You can buy assets from an insolvent company (a company that is in a formal insolvency procedure, either administration or liquidation), but the process is slightly different to simply acquiring the business and assets of a solvent trading company.

A prospective buyer should be aware of the structures that could apply to such an acquisition, the key risks that are associated with the acquisition and the compliance issues that need to be overcome before proceeding with the acquisition of business and assets from an insolvent company.

There are various ways to wind up or liquidate a limited liability company. Each method will essentially realise the assets of the company and distribute the proceeds to the company’s creditors or shareholders, but they are individually unique as to the processes that need to be followed.

One such method is a Creditors’ Voluntary Liquidation.

What is a Creditors’ Voluntary Liquidation?

There are various ways to wind up or liquidate a limited liability company. Each method will essentially realise the assets of the company and distribute the proceeds to the company’s creditors or shareholders, but they are individually unique as to the processes that need to be followed.

One such method is a Members’ Voluntary Liquidation.

What is a Members’ Voluntary Liquidation?

A company experiencing financial difficulties is not necessarily a cause for alarm, as it is part of the natural cycle of a business generally. If, however, the directors are concerned about the financial position of their company, they should seek professional advice on the next steps to improve the company’s financial position and to protect themselves from any actions being taken against them personally for breach of their director’s duties.

Liquidation is the process whereby the Official Receiver or an insolvency practitioner formally takes control of a company in order to realise and distribute its assets to its creditors to satisfy the debts owed. Following this realisation and distribution, the company will be dissolved.

A company can enter into liquidation in a variety of different ways:

There is wide ranging confusion in the UK about what the term “insolvent” actually means. News outlets often use the term incorrectly, or otherwise blend it with other common phrases that apply to companies in financial struggle (for example, it is sometimes suggested that an insolvent company is a company that is being wound-up).