Advantages and Disadvantages of Liquidation

E20-591 Whilst liquidation can be a difficult process for some companies, there are some advantages to the process. One of the main advantages is that all those involved in the company will be able to move forward once the process is finished. Companies that enter a Members Voluntary Liquidation will find that the process ends much quicker as opposed to a Creditors Voluntary Liquidation, which often takes longer as a result of a full investigation of the company being carried out.
A Creditors Voluntary Liquidation also has some advantages. During this process, the liquidator is more involved, meaning that company directors are free from hassle from creditors. Whilst many company directors dislike the liquidator taking over the company, others may feel relieved that the company’s debt problems are in the process of being solved.
E20-515 The liquidation process does have disadvantages. If a company wrongfully declares that it is solvent during the Members Voluntary Liquidation process, then the company directors could face a penalty and will be forced to enter a Creditors Voluntary Liquidation instead.
Companies that enter a Creditors Voluntary Liquidation will be at a disadvantage if it is discovered that the company have been trading wrongfully. The process is much lengthier, which is a disadvantage for those wishing to bring the company to an end much more quickly in order to move on.
E20-335Since there are many downsides to liquidation, many companies may wish to seek advice from a financial advisor in order to consider other options. An informal arrangement is often an ideal option for companies as it allows them to agree on a payment amount and what time period the debt will be paid over with creditors, allowing the company to continue trading. An insolvency practitioner is usually involved in these processes and will ensure that the company meets the payment amounts and dates set by the company director.

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