Why a small business man should close an insolvent business

Company Winding Up A company winding up is the mechanism by which an insolvent business legally ceases to trade with the help and assistance of an insolvency practitioner. It is often called a creditors voluntary liquidation. As a company director you need to be constantly aware of the financial position of your business, and take steps, if you conclude that the company is insolvent, not to increase the debt levels. If you conclude after a review that the company can be turned around, then you are allowed to trade it, but such decisions need to be minuted at meetings and evidence of the steps taken documented. A failure to do this can later result in an action against a director for wrongful trading. If you conclude that whatever steps you take the business will still ultimately fail and may increase in losses, then as a director you are obliged to take steps to close it down. For many the route taken will be the Creditors Voluntary Liquidation. If the company has an underlying good business, but will not trade through its problems then the business should be closed, but it could continue in another guise, with a pre-pack sale to a phoenix company. The liquidation is begun by directors reporting to the shareholders, that the company should cease to trade. They will then generally approach an insolvency practitioner to help prepare a statement of affairs and call a meeting of creditors, who will ultimately vote to liquidate the company. If you are unsure of the procedure take advice from some one such as an insolvency practitioner who will be ideally placed to help you take the first steps, which will include preparing the necessary paperwork, and also getting the finance in place for a pre-pack if so required. It is generally thought advisable for directors to take the bull by the horns and begin the winding up process themselves as it is a clear sign of corporate responsibility. This will go to your favour on the report that a Liquidator must prepare for the Secretary of State. The winding up process is not difficult but it is understand that it can be emotional. It is common place to have feelings of guilt about closing down a business. If you have dealt with suppliers for many years you will feel bad about not paying them. I suspect that for too long many of you have even paid suppliers out of your own pockets. That is not the point of a limited company enterprise, It exists to protect personal liability. If you continue to trade whilst insolvent, you risk wrongful trading as I outlined above. It is better for all to take steps to close down the insolvent business and if appropriate pre-pack the sale of the going concern to a clean company, that way jobs are saved, no further losses are incurred and your suppliers can trade afresh with a solvent entity. Remember you do not have to face this alone, but by delaying making the call, could make matters worse for your creditors, and ultimately that may reflect upon you.