How to liquidate your Automotive Company
The automotive sector continues to play a vital part in helping Scotland to reach the 2045 net zero emissions targets but businesses face significant challenges ahead due to the cost pressures of changing infrastructure and production methods.
If an automotive company enters insolvency its directors must cease trading and seek assistance from a licensed insolvency practitioner (IP). If there’s no chance of rescue, this could lead to company liquidation.
So what are some of the challenges that are leading automotive businesses into liquidation in Scotland and how could they be dealt with effectively?
Challenges facing the Scottish automotive sector
Rising production costs
The soaring cost of energy is increasing production expenditure and leaving vehicle producers with little option but to increase the end price to consumers or find cheaper manufacturing locations.
Additional red tape for automotive exporters
The increased red tape for vehicle exporters following Brexit can be onerous and creates higher costs. Congestion at border crossings can cause reputational damage with customers due to logistical problems that are expensive to solve.
Can automotive businesses overcome these sector challenges?
Businesses experiencing rapid financial decline may be rescued if they act quickly and seek professional help. Scotland and the wider UK operate a strong regime of business rescue with solutions including company administration and debt restructuring.
Company administration can be an effective procedure when companies are relentlessly pressured by creditors. A further possibility for rescue is a formal renegotiation of debt repayments via a Company Voluntary Arrangement (CVA). This makes creditor payments more affordable and offers a business the opportunity to trade out of difficulty.
What does liquidation mean for the automotive sector in Scotland?
Liquidation means that a company closes down permanently and is a procedure that can be used for insolvent and solvent businesses. In the case of a company that cannot pay its debts, liquidation protects creditor interests and enables directors to fulfil their legal duties.
Creditors’ Voluntary Liquidation (CVL) for insolvent automotive firms
Creditors’ Voluntary Liquidation must be administered by a licensed insolvency practitioner (IP). Whilst safeguarding creditors from further financial loss, which is its main objective, it can also help to protect company directors from allegations of wrongful trading.
During CVL, the appointed liquidator realises the company’s assets to provide a return for creditors. When the administrative process is complete, they remove the company name from the official register.
A key benefit for directors when placing their company into insolvent liquidation is their potential eligibility for statutory redundancy pay if they’ve worked for the business as an employee as well as a director.
Members’ Voluntary Liquidation (MVL) for solvent businesses
Members’ Voluntary Liquidation is a highly tax-efficient way to close down an automotive business that’s in good financial health and able to repay all of its creditors within 12 months.
Distributions from the sale of business assets are subject to Capital Gains Tax (CGT) rather than income tax so if a company has around £25,000 or more in distributable profits it can maximise shareholders’ gains tax-efficiently.
Scotland Liquidators specialise in helping directors to liquidate their solvent or insolvent companies and offer reliable independent professional guidance.
