How to liquidate your Construction Company
The construction sector is a key employer in Scotland and supports the national and local economies. When construction slumps it has a ripple effect on other industries, such as manufacturing and transport, so construction bosses must seek support at an early stage.
Although general trading conditions for the sector have improved since the pandemic, complex issues still plague construction firms, particularly when there isn’t enough money to invest and grow.
So what are some of the challenges facing construction companies in Scotland, and how might they affect business?
Challenges facing the construction sector in Scotland
Supply chain complexity
Complex construction supply chains can leave smaller members unable to rectify the problems being experienced further up the line and increase their risk of insolvency and liquidation.
Skilled labour shortages
A chronic shortage of skilled construction workers is hampering the sector’s ability to deliver building projects reliably and within proposed budgets, as well as pushing up the cost of labour. Small and medium enterprises (SMEs) may be most affected given the time it takes to fully train a construction worker.
Late payments
Late payments are notorious in the construction sector and it’s vital that businesses – smaller suppliers, in particular – seek solutions such as alternative financing as bad debts and poor cash flow can quickly lead to insolvency.
Is it possible to rescue a construction firm in financial distress?
When a company enters insolvency it may be possible to rescue it and prevent liquidation. Various options are available in this respect, but as we mentioned earlier, it’s crucial to seek help quickly.
For example, a construction firm might be able to enter company administration if it’s experiencing relentless pressure from creditors. This provides some time to evaluate the situation and plan for the future. But what happens if there’s no chance of rescue?
Creditors’ Voluntary Liquidation for insolvent construction businesses
Creditors’ Voluntary Liquidation (CVL) is a process that winds up an insolvent company’s affairs when recovery isn’t possible. It’s administered by a licensed insolvency practitioner (IP) who realises the construction firm’s assets via a liquidation sale.
Creditors are then repaid as much as possible and the company name is struck from the register at Companies House. An important point to consider is that company directors must cease trading when their firm enters insolvency to minimise creditor losses.
Members’ Voluntary Liquidation for solvent construction firms
Liquidation can also be a good option when a solvent construction firm needs to close down. Members’ Voluntary Liquidation provides a way to extract maximum profits from the business as distributions are taxed as capital rather than income.
A shareholder’s tax liability may be reduced even further to an effective rate of 10% if they’re entitled to claim Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs Relief. MVL is typically suitable for companies with retained profits of £25,000 or more.
Scotland Liquidators provide the professional guidance and expertise needed when a business is experiencing financial difficulty and help company directors to liquidate where appropriate.
