What is limited company bankruptcy in Scotland?
When a company goes bankrupt, the technical term for this is that the company is insolvent; however, the two terms are often used interchangeably.
A bankrupt company no longer has the ability to keep up with its debts and other bills as and when they fall due. This leads to the company falling into arrears with HMRC and other creditors, seeing their debt increase due to interest charges and late payment fees, causing some to rack up yet more debt as a way to pay off their increasingly impatient creditors. This creates a spiral which is incredibly difficult for a company to get out of without professional help.
What are your duties when you know your company is bankrupt in Scotland?
What are your duties when you know your company is bankrupt in Scotland?
If you believe your company is bankrupt, or is on the edge of bankruptcy, you need to take swift action to stop the problems from getting any worse. As the director is an insolvent limited company, you have a number of legal duties and responsibilities that you must comply with.
One of these legal obligations is to prioritise the interests of outstanding creditors from the moment you know your company to be insolvent. You should not engage in any action which could make your creditors situation worse; this includes obtaining further credit you know your company is unlikely to be able to repay, selling company assets for lower than their true market value, and paying some creditors off at the expense of others.
What are your options when dealing with limited company bankruptcy in Scotland?
When your company becomes bankrupt, you should seek out the services of a licensed insolvency practitioner. They will be able to talk you through your options for either rescuing or closing your company, and ensure you remain on the right side of the law when it comes to how you treat your creditors during this time.
Just because your company is currently at risk of bankruptcy, does not mean it is beyond rescue. There are a range of formal and informal company rescue and recovery options available which can be used to turn around the fortunes of a financially struggling business.
These include:
- Negotiations with creditors – Depending on the scale of your financial challenges, you may be able to enter into discussions with your outstanding creditors in order to restructure your debts and come to a mutually agreeable solution. If your main debts are to HMRC, your arrears can be dealt with via a Time to Pay Arrangement which would give you between 3-12 months to bring your tax affairs up to date.
- Company Voluntary Arrangement (CVA) – A CVA is a legally-binding repayment plan entered into by a limited company and a number of its creditors. HMRC debts can be included in a CVA as well as monies owed to suppliers and finance providers. CVAs typically run for 3-5 years, during which time you will be required to make a monthly contribution towards your company’s debts; some unaffordable debt will typically be written off as part of the process.
- Administration – A company facing increasingly hostile pressure from creditors can be placed into administration while a route forward is planned. Administration typically involves some form of restructuring and/or refinancing in order to make the company more efficient both operationally and financially, increasing its chances of emerging from the process as a viable entity.
Closing a company which has become bankrupt in Scotland
Closing a company which has become bankrupt in Scotland
In some instances, a company which is threatened with bankruptcy has no realistic alternative other than to close. This is often done to protect creditors from additional financial losses and to allow the company’s affairs to be wound down in an orderly manner.
For a bankrupt business, company closure is achieved using a formal liquidation process known as a Creditors’ Voluntary Liquidation (CVL). As part of a CVL, a licensed insolvency practitioner is appointed to assume full control over the insolvent company; it then becomes their responsibility to deal with all creditor communications from that point forward.
The insolvency practitioner will identify and sell all assets belonging to the bankrupt company and use the proceeds of this process to pay down the company’s debts as much as possible. Any debts which remain will be written off unless these have been personally guaranteed.
While closure may not be your preferred option, sometimes it is the only appropriate option when a company is bankrupt and has no viable future.
How Scotland Liquidators can help
How Scotland Liquidators can help
If your company is bankrupt – or is at risk of soon becoming bankrupt – contact the experts at Scotland Liquidators for immediate help and advice. Our licensed insolvency practitioners are here to guide you when it comes to bankruptcy and insolvency and can talk you through your options for both business rescue and company closure.
