Liquidation Myths and Untruths

Below are the most common reasons why people are discouraged from taking necessary action to liquidate their company.  In some cases actually trying to avoid liquidation by selling the company.

Reputational damage

If you do not pay your creditors you will suffer reputational damage whether you have sold it to another company or liquidated it formally.

You may not be able to get business insurance and your current insurance may not be renewed if you have another company.

This is completely untrue.  We liquidate companies all the time and the directors do not have this problem.  They might have issues getting cover if they do it more than once.  Some very riskaverse insurers might turn you down but there are literally thousands out there.  There may be a tiny increase in the premium and you may have to answer a few more questions for the insurers piece of mind.

You won’t be eligible for any business finance or loans from banks or other lenders

Again this is simply not true.  All banks and lenders recognize there is some risk in running a business and a failure of a start up or a liquidation is not going to be a problem.  It will be if there appears to be a pattern of multiple liquidations though.  Even then it will not have any affect on your personal credit rating.  Company credit scores are totally separate.

You will be disqualified as a director if the company goes into liquidation

This is completely wrong. Only if you have been fraudulent or deliberately misled creditors knowing the business is going to fail will you face disqualification or be personally liable for the debts (note that if you have personally guaranteed loans then yes you will be liable ). This worry tends to make directors “freeze up” and take no action out of sheer panic.

You can’t be a director again if the company fails

Completely wrong again (see above).

You may not be able to obtain another VAT registration. If you do, HMRC may require you to pay a significant deposit.

If you owe the HMRC a substantial amount of VAT then they will wind the company up with a petition, so it will be liquidated anyway. The former directors during the time the money was owed will be on their radar.  It is better to do a voluntary liquidation in these circumstances.  Yes you may need to provide a deposit in a new company but probably only if you owed them substantial sums.

Large companies and local authorities wont grant tenders to directors of liquidated companies

What is actually being said here is that large companies won’t give tenders to insolvent companies!  Well of course they wouldn’t.  A previous liquidation by a director will not preclude them.  There is no mention of any such exclusions in the The Public Contracts Regulations 2015.

The NHS will not employ anyone who has liquidated a company

Err no.

The one area where liquidating a company can have some personal issues is if you are going to work in very sensitive finance areas and perhaps national security.  This is mainly because they worry that a creditor could apply pressure on you or you could be more easily bribed if you have lost a lot of money in the past.  However, avoiding voluntary liquidation may well result in a compulsory court liquidation process that is likely to lead to even worse outcomes.