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What to do when your business goes bankrupt

Business mean’s risk and this is universal. All the businessmen would like to get benefits from their business. They also need to consider the risk of the business. Running a business comes with no guarantees of success. Statistics show that 20 percent of small businesses fail in their first year, 30 percent fail in their second year and 50 percent fail after five years.

That failure can be brought about by any number of things. Demand for your products and services can fall; new competitors can enter the market; business rates and rents can rise to unmanageable levels; key suppliers can go out of business, and customers and clients may not make payments on time.

Insolvency rather than bankruptcy 

The correct term to describe a business that can no longer afford to pay its debts is ‘insolvent’ rather than ‘bankrupt’. The business enters insolvency and has several routes it can take to attempt to rescue the business or close it down, depending on the specific circumstances it faces.

Bankrupt is the term used to describe private individuals who can no longer afford to pay their bills. They enter bankruptcy to seek relief from all or some of their debts and to make a fresh start. However, distinguishing between insolvency and bankruptcy is not quite as clear cut as that. Businesses that are sole traders and partnerships become bankrupt, rather than insolvent. That’s because there’s no distinction between the owner of the business and the business itself.

A company is said to be insolvent when:

  • It cannot pay its debts when they become due; and/or
  • The value of its assets is less than its total liabilities; and/or
  • It has outstanding statutory demands for payment for unanswered court orders or county court judgments.
  • If any or all of these statements apply to your company, there’s a good chance it is insolvent. If you’re not sure whether your company is insolvent, please contact us for advice.

If your company is insolvent, it doesn’t necessarily mean your business will have to close. Many businesses have fought their back from insolvency and gone on to be successful. The first course of action for the director of an insolvent business should be to explore whether it’s possible to rescue the business.

What happens if you liquidate your limited company?

Voluntary liquidation might seem like an absolute last resort, but there are some very important benefits associated with the process. If you have been compliant with the relevant regulations while operating as a director and have been on the payroll for a number of years, you may even be able to claim director redundancy pay, which could help to pay for the liquidation and soften the financial blow. Get in touch with an asset recovery company today to ease the process of liquidation.