May 20, 2022

Closure Isn’t Always Bad

Closure Isn't Always Bad

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The word Closure is often associated with something ending or closing – but this isn’t always a bad outcome. It all depends on your situation and your point of view.

Say a business has a lot of debt and can only make the minimum repayments to some of its creditors – not even all of them every month.

The business owners and directors are scrambling to solve these issues and deal with the fallout of being in arrears and how to handle more aggressive repayment demands from their creditors.

Aggressive Repayment DemandsThey can’t mentally or physically be in two places at once and their business is suffering because they cannot give all their attention to the business – let alone on strategic planning on how to become profitable or come up with a clear plan to repay problem debts. This is where closure can be a good thing.

For a limited company, if it has outstanding, unsecured debt, then it is allowed to close down using an insolvency procedure called a CVL or creditors voluntary liquidation.  In this scenario the debt is written off and ends when the company does.

This will allow the directors or business owners to move onto their next career either forming another business or working for somebody else without this debt or the threat of repaying it hanging over them.

Creditors rarely receive 100% of the amount they are owed from liquidating businesses but they are more likely to receive some money from the sale of assets which is distributed from a central fund after the closure.

They can then concentrate their efforts in other areas rather than chasing debt that is unlikely to ever be paid back in full.

In the insolvency world, they use the word liquidation for closure but they are essentially the same outcome for a business – especially in a CVL.

A business undergoing the process has to follow a formal legal timeline during any voluntary liquidation but the process can be completed in as little as two weeks from the date of the initial meeting to the final procedures which see the business formally placed into liquidation and closed.

In the last 12 months over 90% of business insolvencies were CVLs – which shows how it can be effective, affordable and available.

Solvent businesses can close through a liquidation too although their method is slightly different and known as an MVL or members voluntary liquidation. Only businesses with no debt or debt that can be repaid in full within 12 months can use this as it is the most efficient and tax effective way of business closure.

Some people see closure as a failure but this is the wrong way to consider an ending.

failure would be pursuing a lost cause

A failure would be pursuing a lost cause and pouring money, time and effort into a business which has no viable future. In this case, a closure would be the logical and sensible next step for everyone concerned.

If you need a free consultation about business, you can consult our experienced advisors.

If there is a way forward for the business then they will be able to identify it and its chances of success but if closure is the most appropriate strategy then they will be able to advise on this too.