What Happens If A Business Fails?

business woman holding her head in her hands looking at laptop in coffee shop

When your business is thriving, you certainly don’t expect it to fail. However, changes in circumstances that are often out of your hands, can cause unexpected difficulties that may jeopardise this success. So, what happens if a business fails? 

If a business begins ‘failing’, this doesn’t always mean it is the end of the road. Depending on the individual circumstances, it may be possible to recover the business and return it to profitability. When this is not possible, directors can be proactive in liquidating or closing down their company in the most efficient way, in order to minimise damage. 

It’s important to know what happens if a business fails in order to be proactive in taking the best decisions for your company if it runs into difficulty. Most importantly, it’s essential to emphasise the importance of acting fast. By acting at the first signs of financial difficulty, it may be possible to recover the business or place it into voluntary liquidation as follows:

Business Rescue

For directors who are wondering what happens if a business fails, it’s a common misconception that closing the business down is the only option. This is not always the case. If your business is facing financial difficulty, you should contact a licensed insolvency practitioner, who will be able to advise you on whether or not company rescue is an option. Rescue methods used may involve:

Voluntary Liquidation

Another option to consider when thinking about what happens if a business fails is voluntary liquidation. This is a method for winding up the affairs of the business, whilst liquidating its assets in the most tax efficient way possible. If the company is insolvent, it can be liquidated via a Creditors Voluntary Liquidation (CVL).This process removes creditor pressure quickly, whilst protecting the company from further legal action and allowing them to liquidate the assets efficiently. If the company is still solvent, a Members Voluntary Liquidation (MVL) can be used to extract the assets.

Determining what happens if a business fails is largely influenced by how quickly directors act at the first signs of trouble. Being proactive will provide the company with more generous options, such as a rescue plan, or voluntary liquidation, as listed above. When a company does not act, and allows their debts to continue accumulating, they are at risk of facing action from creditors, and potentially being closed down via compulsory liquidation

Compulsory Liquidation

If creditors are unable to recover the debts they are owed by the company, they may make an official request for payment via a statutory demand or a County Court Judgement (CCJ). If they are unable to recover the debt through these methods then they may apply for the company to be wound up. If the Winding Up Petition is approved by the courts, then the business will face compulsory liquidation, forcing them to close down. 

Knowing what happens if a business fails, will put directors in the best position for acting efficiently at the first signs of financial difficulty. If a business is struggling, it doesn’t necessarily mean the end of the road. Consulting professional guidance as soon as possible, will provide the company with more options, including the potential to recover the business. 

If you’re concerned that your business may be failing, please don’t hesitate to get in touch with our experienced team of insolvency professionals at My Liquidation for confidential advice.

Contact Us

I'm looking for more information on ...


Choose from the options below