Bankruptcy vs. Liquidation
Only individuals, and not businesses, can be declared as bankrupt. During tough economic times there is often an increase in the number of people filing for bankruptcy when they are unable to pay off soaring debts. They can either petition the court or one of their creditors can do it if they owe more than 750. In extreme cases petitions for bankruptcy can be done through a county court or the High Court in London. Once they have received a petition they will then decide if bankruptcy is the right course of action before granting it. When the bankruptcy order has been granted the individual will then be appointed to an Official Receiver or an Insolvency Practitioner who will act on their behalf to protect personal assets and administer the bankruptcy. They will also be in charge of paying back creditors. New laws on bankruptcy state that an individuals case lasts for a year after which they resume normal financial status.
Liquidation is similar to bankruptcy but is reserved for businesses. The news often reports about large companies going into administration which is the first step towards liquidation. Similar to bankruptcy, a company can voluntarily go into liquidation (known as a CVL) or their creditors can petition the court for them instead. In some cases company members can put the business into liquidation if there are enough assets to pay off any outstanding debts they owe. In other cases the company will cease to exist after going into liquidation as everything it owns will be sold off. Unlike bankruptcy, liquidation tends to be permanent unless the company can keep hold of enough assets to continue trading.
The lesser of two evils
In some situations it might be obvious which avenue is the right one, but not always. Those acting as sole traders may wish to talk to a legal advisor to find out whether they are able to liquidate the business or if they will have to file for bankruptcy. Either option is a big step to take so it is best to speak to an expert to discuss alternatives before making a decision. Whatever the outcome it is always advisable to seek insolvency advice so any legal proceedings can be done through an expert.
Only individuals, and not businesses, can be declared as bankrupt. During tough economic times there is often an increase in the number of people filing for bankruptcy when they are unable to pay off soaring debts. They can either petition the court or one of their creditors can do it if they owe more than 750. In extreme cases petitions for bankruptcy can be done through a county court or the High Court in London. Once they have received a petition they will then decide if bankruptcy is the right course of action before granting it. When the bankruptcy order has been granted the individual will then be appointed to an Official Receiver or an Insolvency Practitioner who will act on their behalf to protect personal assets and administer the bankruptcy. They will also be in charge of paying back creditors. New laws on bankruptcy state that an individuals case lasts for a year after which they resume normal financial status.
Liquidation is similar to bankruptcy but is reserved for businesses. The news often reports about large companies going into administration which is the first step towards liquidation. Similar to bankruptcy, a company can voluntarily go into liquidation (known as a CVL) or their creditors can petition the court for them instead. In some cases company members can put the business into liquidation if there are enough assets to pay off any outstanding debts they owe. In other cases the company will cease to exist after going into liquidation as everything it owns will be sold off. Unlike bankruptcy, liquidation tends to be permanent unless the company can keep hold of enough assets to continue trading.
The lesser of two evils
In some situations it might be obvious which avenue is the right one, but not always. Those acting as sole traders may wish to talk to a legal advisor to find out whether they are able to liquidate the business or if they will have to file for bankruptcy. Either option is a big step to take so it is best to speak to an expert to discuss alternatives before making a decision. Whatever the outcome it is always advisable to seek insolvency advice so any legal proceedings can be done through an expert.