What happens when a company goes bankrupt in the UK?

Dealing with a company’s finances can leave you in for a bit of a wild ride. Things can plod along easily enough for quite some time, but then it only takes a relatively short period of market turmoil or any number of other issues to leave your organisation in dire financial straits.

If things get bad enough, it’s possible that your company will go bankrupt, but what does this actually mean? Let’s take a quick look at what can happen in these kinds of situations, to help you navigate what will likely be a very stressful time.

Determining insolvency

When your company gets into a really serious financial situation, a further investigation will be necessary. During that investigation, you will need to see whether your debts and liabilities exceed the company’s assets.

If this does turn out to be the case, then your company will likely be considered insolvent. While some people refer to this process as bankruptcy, technically bankruptcy refers to insolvency in individuals, not companies or other businesses. The two words refer to similar processes but in different contexts.

You will not typically be able to navigate this process on your own. You will need to work together with an insolvency practitioner like Chamberlain & Co, to choose which solution to your financial issues will be most appropriate.

Choosing a solution

There are a number of potential ways of dealing with insolvency, depending on the details of the situation.

Administration

If the company in question is still in comparatively good shape, and the insolvency practitioner believes that there is a chance it can be saved and returned to profitability, then it’s possible that it can placed into administration.

This will mean that the company directors relinquish control, in return for the company receiving certain protections against creditor actions. It increases the chances that the business will be saved, but this is definitely not a given.

Liquidation

If the company cannot be saved, then it may need to be liquidated. Essentially, this entails the cessation of trading, striking the company off the register at Companies House, selling off all of the assets and then distributing the proceeds in legal order of priority.

The options don’t stop there, however. There are three different kinds of liquidation processes that your company can use – a Members’ Voluntary Liquidation (MVL) a Creditors’ Voluntary Liquidation (CVL) or a Compulsory Liquidation.

It’s important to discuss which of these options might be best with your insolvency practitioner, to make sure you choose the right one. You will need to abide by the rules outlined in the Insolvency Act 1986, meaning that your decision will need to be based on much more than mere personal preference.

Guiding a company through insolvency can be a trying experience, but it’s important that you get it right. By working with the right services, you can make sure that you comply with all the relevant legislation governing these kinds of events, while maximising the chances that your company survives.