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Everyone who has ever encountered entrepreneurial activity knows that closing a company is much more difficult than opening it. Company closure in the UK is a voluminous complex of tasks that requires a lot of time and effort. Especially if the company closure is connected with bankruptcy. 

Various reasons can lead to bankruptcy: the company has become unprofitable, the recession has led to the fact that owners cannot pay off creditors or the bank, and many other significant reasons. IQ Decision UK professionals offer you a short overview where you will find what exactly happens with a company when it faces insolvency, and what to do in case of a bankruptcy of a legal entity under English law.

Using the terms correctly

‘Bankruptcy’ is a widely used term in countries under English law. But contrary to popular belief, this word is used to refer to individuals: for individual entrepreneurs and partnerships, where the finances of the business participants are considered as one. 

For companies the term’ insolvency’ is used. However, not every organization experiencing financial difficulties can be considered insolvent.

Liquidation of a limited liability company in England

We draw your attention to the circumstances in which a company becomes insolvent under English law. The first is when the company is not able to pay all its debts now or in the near future. The second is when the value of the company's assets is lower than the sum of all its obligations. If the existing obligations exceed the possibilities for satisfying them, then an assessment of the financial condition of the debtor is carried out and the most complete satisfaction of all available financial requirements is organized.

What to do in case of insolvency of the company? The very first and vital thing is to limit the obligations of creditors. Otherwise, the risk that the company owner will be personally responsible for its debts is high. Learn more about in the UK insolvency procedure from our seasoned solicitors.

Company closure in the UK

Insolvency of legal entities in the UK, or rather, the essence of the procedure, is as follows: if the company cannot pay its debts, it either provides its property to creditors for sale on debt, or special measures are introduced in relation to it aimed at restoring solvency to pay off debt.

The insolvency procedure begins with the filing of an application for declaring the debtor company bankrupt. It can be submitted by both creditors and the company itself, which thus voluntarily declares itself insolvent. 

Then it will be wise to appoint a specialist to supervise the entire liquidation procedure which may be quite lengthy.

Once the liquidation process is completed, the company ceases to exist.

Possible Alternatives to Liquidation

There are numerous alternatives to a legal entity liquidation  in England, due to which, depending on the circumstances, one can achieve a more favorable results for the company, its management, creditors, and for employees. Here’re just a few:

Capital injection

The decision to inject additional capital will be a good way out of the situation if there is a plan for further actions. You can negotiate for additional financing from lenders or invest your own money in a business.

Financial recovery

Financial recovery is a procedure designed to save a company from liquidation. It is aimed at restoring solvency and covering debts. To do this, debt restructuring is carried out and a special schedule for their repayment is approved by the arbitration court. At this stage, the top manager does not have the right to make decisions leading to an increase in the company debt; he must coordinate his actions with the creditors. 

Find out about this and other alternatives to bankruptcy from our experts. Bankruptcy proceedings remain a very complex and confusing process, in which one cannot do without competent legal advice. The vast majority of managers are not able to cope with it on their own. Timely legal advice will save company resources, save money and the nerves. 

Our legal advisors have a high level of knowledge of English law. We deeply study the problems of our clients, and provide an unbiased opinion.

If you are seeking legal assistance in a company insolvency proceedings in England, please contact the solicitors from IQ Decision UK.