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Should you consider winding up your company?

6th Jun 2015
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The expression ‘winding up’ provokes a lot of confusion as it depending on your circumstances it can conjure up different meanings to different people. For example when a company is forced into liquidation by its creditors via a winding up petition the directors are being forced into a compulsory liquidation. Generally though when a company s being wound down by the directors this is usually a voluntary situation so directors are in more control of the situation. So, winding down the company may be completed quickly or can be completed over a period of time dependent on circumstances.

No matter what the circumstances though winding up is linked with the closing down process of a limited company. The company can be solvent or insolvent and in this case we will be presenting an insolvent company situation.

So, when we talk about director’s winding up a company appropriately we are talking about a creditor voluntary liquidation.

To begin with let’s consider what does it mean for a company to become insolvent – what has to happen? What is the trigger that turns a solvent company into an insolvent one? The answer is really fairly simple and there are two key triggers and they are:

  • When a company’s liabilities contingent or otherwise outweigh the company assets
  • When a company can no longer pay its bills when they are due

When we talk about contingent liabilities we mean debts that will eventually arise given time. For example a company may on the face of it be paying its way by juggling its creditors but may have a large employee redundancy bill if the company closed. This redundancy bill although not due now would be considered a contingent liability.

So, when should you consider winding up your company? Well, there are a number of instances that occur quite frequently. The most common and often saddest is where the directors have ‘invested’ their personal cash and or drained the ‘family bank’ but still making a living wage. They may be juggling creditors but if not even making a living wage - why continue flogging a dead horse? Very often the business model is simply tired and has run its natural course leaving the directors bemused as to what has happened. It is difficult for directors to fathom what has changed when nothing may have and that is often the root of the problem. In these cases a fresh objective but experienced pair of eyes will often spot the problems within hours and often in minutes. So if you are not making a living wage suffering negative stress on a daily basis, losing sleep then winding up via liquidation may be the best solution.

Another common mistake is to continue trading whilst insolvent ad directors can be made personally liable for company debts. So if you are currently robbing Peter to pay Paul and constantly juggling creditors and making no head way you should reconsider your position.

Negative stress affecting health can be another common reason for considering winding down your company and liquidating. It is a fact that negative stress plays an important part in encouraging ill health and even linked to certain cancers. If you are not sleeping and constantly under negative stress it is likely to affect your personal life too. Relationships are often the first thing to be affected but often go un-noticed until it is too late. No amount of business revenue is worth losing your family or health over so consider seeking advice before it’s too late.

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By mira33
07th Jun 2017 12:46

thanks for the insight into the notion of 'company winding up'. actually i ve got a quick question - can company resume its operation after winding down? and if yes, what are the steps. and if not, what are the whys. thanks for reply. they'll be really useful to my research papers in the same.

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22nd Jun 2018 07:31

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