How to liquidate your Manufacturing Company
Manufacturing is an important sector for the Scottish economy and supports exports worldwide whilst also being a large employer in the country. Advances in technology make it an attractive option for new entrants to the workforce with robotics and artificial intelligence being key developments in process planning and production.
Attracting new talent into manufacturing isn’t necessarily easy, though, given the shortage of workers with the required experience. This and other issues threaten success for some manufacturers in Scotland, so what other challenges are creating uncertainty in the sector?
Challenges facing manufacturing in Scotland
Environmental and sustainability targets
Reducing waste and adopting new, more environmentally friendly production methods requires a significant investment that some manufacturing businesses may not be able to make.
Affordable premises
Manufacturing typically requires larger-sized premises for the machinery and equipment that are essential for production. The cost of renting premises and the associated outgoings, including business tax and energy, can be onerous.
Liquidation for Scottish manufacturing firms
When a firm becomes insolvent, depending on the circumstances, it may be able to regain its footing via formal measures. If this isn’t possible, however, liquidation is likely to be the only option.
Liquidation means that assets are realised and business affairs wound up before closure but there’s a liquidation procedure that’s also widely used for financially healthy manufacturing businesses.
What is liquidation for insolvent manufacturers?
Creditors’ Voluntary Liquidation (CVL) is an official procedure that a company must enter if it has unmanageable debt. Its main purpose is to protect creditors from further financial loss and close the business down.
To achieve this, company assets are sold at a liquidation auction, and because manufacturing typically uses high-value assets this can generate funds to provide unsecured creditors with a return.
Directors are also protected from allegations of wrongful trading if they seek professional assistance quickly as they’ve voluntarily placed their company into liquidation. A further benefit for directors entering CVL is being able to claim redundancy pay under certain conditions.
What is liquidation for solvent businesses in the manufacturing sector?
Members’ Voluntary Liquidation is the procedure used to liquidate the assets of a solvent manufacturing firm and close it down. This is a good option for directors if their business has around £25,000 or more in distributable profits.
Distributions are subject to Capital Gains Tax (CGT) and if a director is eligible to claim Business Asset Disposal Relief (BADR) their tax liability could be reduced to an effective rate of 10 per cent.
Potential rescue options for insolvent manufacturers in Scotland
If a licensed insolvency practitioner (IP) believes the business can be rescued, a potential option for recovery is to formally renegotiate their debts to an affordable level with creditors.
Other solutions include entering company administration, but finding the right type of finance may also help them regain their financial stability. Scotland Liquidators can provide reliable professional advice quickly and help directors of manufacturing firms in Scotland to determine the best way forward.
