If a company has run out of cash and is unable to pay its creditors, it is insolvent
. In this situation, the company cannot be allowed to continue to trade particularly as the position of the creditors is likely to be made worse.
The business may be struggling because of changes in the market such as fewer customers or greater competition or it may simply have fallen victim to mismanagement.
The company’s directors will normally have already considered all alternative business rescue options such as additional investment a Company Voluntary Arrangement or Pre-Pack Administration. However, for whatever reason, it has been decided that these solutions are not viable. To protect their own position, the directors will therefore instigate the closure of the business.
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Assets sold and Employees made redundant
A liquidator will be appointed by the company’s creditors and tasked with making staff redundant and selling the company’s assets. Any cash made available will be shared out to the company’s creditors. However, in the case of a creditor’s voluntary liquidation, it is unlikely that creditors will be paid in full.
The company will then be dissolved.
