Business Rescue Vs Liquidation – What’s the Difference?
Published On: August 23rd, 2021
If your business is struggling financially then you’re likely to be wondering what your options are moving forward. In some cases, the only option may be to liquidate the company, however, in some instances it may be possible to put a, business rescue plan in place. In order to give you more of an idea regarding the options available to your business, let’s take a look at the difference between business rescue vs, liquidation.
What Is Liquidation?
Liquidation is the process of formally closing a company. There are different liquidation processes that alter depending on whether the company is solvent or insolvent. These are:
Members’ Voluntary Liquidation (MVL)
If a company is solvent, i.e its assets are greater than its liabilities, then it can be placed into voluntary liquidation via an ,MVL. This is a tax efficient way to extract funds for shareholders in the process of winding the company down.
Creditors Voluntary Liquidation (CVL)
A ,CVL is a voluntary process initiated by directors and shareholders of a company when they recognise that the company is insolvent i.e cannot pay its debts as they fall due. This is the best option for companies who cannot recover their debts and need to prioritise the interests of creditors.
If a company is insolvent and facing increasing pressure from creditors then they may be faced with a ,winding up petition for the company to be forcibly closed down. This can cause catastrophic problems for the business, which is why it’s important for companies to act at the first signs of insolvency.
What Is Business Rescue?
When it comes to discussing business rescue vs liquidation, the objectives between the two are fundamentally different. Whilst liquidation is aimed at closing the company down, business rescue is aimed at restructuring the company in order to make it more profitable and stable. If a licensed insolvency practitioner believes that the company has a realistic chance of rescue then they can work with the business to implement a business rescue plan. The following strategies may be put in place:
Company Voluntary Arrangement (CVA)
For insolvent companies looking for rescue plan, a ,CVA could be a good option. A ,CVA is a binding contract between a company and its creditors to pay back some or all of its liabilities over a specified period of time. This allows the company to carry on trading whilst resolving its debt rather than closing down, highlighting the difference between business rescue vs liquidation.
,Administration is a very useful process that protects a company from creditor pressure, and provides an automatic stay on any current or pending legal actions, usually to facilitate the rescue of the company or the sale of its business and assets on a going concern basis.
Business Rescue Vs Liquidation
So, when it comes to determining the difference between business rescue vs liquidation, there is one major difference between the two. Business rescue aims to recover a business via restructuring whilst liquidation aims to close the company down. When deciding which option is suitable for your company, whether that’s business rescue vs liquidation, you should consult the advice of a ,licensed insolvency practitioner. They will be able to assess whether or not a business rescue plan is a viable option for your company, or whether a voluntary liquidation would be the most realistic option at this stage.
With more than 25 years experience assisting companies in financial stress, Ballard Business Recovery can help you secure the best path forward for your business. For more information regarding business rescue vs liquidation and the options available to your business, please don’t hesitate to ,get in touch with our knowledgeable team today.