What Should Business Owners Do When Facing Liquidation?

At Chamberlains

At Chamberlains Law Firm, we understand that financial distress can be a challenging and overwhelming experience for business owners. When faced with insolvency, it is crucial to understand the options available to you, such as voluntary administration, liquidation and corporate restructuring, to determine which is right for you. Each path has its own implications, and choosing the right one can make a significant difference in the future of your business. Our team of experienced insolvency lawyers is here to guide you through this process because at Chamberlains, we’re with you.

What Is the Difference Between Corporate Restructuring and Liquidation?

Corporate restructuring (including small business restructuring) focuses on reorganising the company’s financial and operational structure to address financial difficulties and return the business to profitability. Under the small business restructuring process, directors retain control of the company while working with a restructuring practitioner to develop a restructuring plan for creditors to approve.

Liquidation involves winding up the company’s affairs, selling its assets, and distributing the proceeds to creditors. This process ultimately leads to the company ceasing to exist. Liquidation is typically pursued when a company is unable to pay its debts (insolvent) and other options, such as restructuring, are not viable pathways for the company.

How Can an Insolvency Lawyer Help Assess Which Option Is Right for Your Business?

An insolvency lawyer plays a critical role in helping business owners navigate the complexities of insolvency law. They can assess your company’s financial position, evaluate the viability of restructuring options, and advise on the best course of action. Whether you need assistance with small business restructuring, voluntary administration, or liquidation, an insolvency lawyer can provide tailored advice to protect your interests and ensure compliance with legal obligations.

Our team of insolvency lawyers can also help you understand the potential risks and benefits of each option, negotiate with creditors, and represent you in court proceedings if necessary. With our expertise in restructuring and insolvency, we are committed to helping you achieve the best possible outcome for your business.

What Are the Key Advantages and Disadvantages of Choosing Liquidation for a Company?

Advantages:

• It may be the quickest and most cost-effective option for insolvent companies that cannot be restructured.
• Any ongoing court proceedings against the company will be stayed.

Disadvantages:

• The company ceases to exist after liquidation, which means the end of its operations and potential loss of goodwill.
• Recoveries from asset sales are typically lower compared to a company that is still trading.
• Liquidation can have a negative impact on the reputation of the directors and may limit their ability to engage in future business ventures.

What Are the Key Advantages and Disadvantages of Corporate Restructuring for Businesses Facing Financial Stress?

Advantages:

• Directors retain control of the business during the restructuring process, unlike in voluntary administration where administrators take over.
• The process provides relief from creditor actions, such as stays on court proceedings and enforcement processes, allowing the company time to develop a restructuring plan.
• Restructuring plans can offer a better outcome for creditors and the company, potentially avoiding liquidation and enabling the business to return to profitability.

Disadvantages:

• Not all companies are eligible for small business restructuring. For example, to be eligible a company’s total liabilities must not exceed $1 million, and tax lodgements and employee entitlements must be up to date.
• If the restructuring plan fails, the company may still end up in liquidation, incurring additional costs and losses.
• The process is less flexible than voluntary administration, as restructuring plans cannot be amended without a court application, and only directors can propose a plan.

How Do Business Owners Decide Between Liquidation and Restructuring During Financial Distress?

Deciding between liquidation and restructuring requires a thorough assessment of your company’s financial situation, future prospects, and the potential impact of each option on stakeholders. Key factors to consider include the level of debt, the company’s ability to meet its obligations, and the feasibility of returning to profitability through restructuring.

Consulting with experienced insolvency lawyers is essential to making an informed decision. Our team can help you weigh the advantages and disadvantages of each option, explore alternative solutions, and guide you through the legal implications of your choice.

We’re With You

If your business is facing financial distress, don’t wait until it’s too late. Contact the Insolvency & Restructuring Team at Chamberlains Law Firm today. Our experienced insolvency solicitors are ready to provide the guidance and support you need to navigate this challenging time. We’re with you. Reach out to us now to discuss your options and take the first step towards securing your business’s future.