The Consequences to Insolvency

insolventInsolvency is a topic that should never be taken lightly. It is pretty major and can lead to the demise of one’s beloved company and in some cases even put one personally liable to creditors. But apart from the obvious, what other consequences does this bomb have? Better read on to find out.

There lies a possibility for a WUP. – A WUP which stands for a winding up petition is a severe method by which creditors force an insolvent company to liquidate. The court shall come into the picture and will impose a compulsory liquidation if the grounds presented by creditors are proven true.

Credit score shall be tarnished. – When the insolvency eventually leads to a bankruptcy or winding up procedure, expect credit standing to be stained. Nothing gets unrecorded and this can mean many things the most hefty of which would have to be finding it hard to apply for future credit or loans.

Assets may need to be sold. – Prior to a liquidation procedure, the entity may already be forced to sell some of its assets to cover for the payment of liabilities. The first to go are often the big ticket items like machinery and equipment as well as inventories.

Employee benefits will be cut. – When financial dilemmas arise, one of the first costs to go will be that pertaining to employee benefits. Of course, this is bad news for both employer and employees.

Personal claims are possible. – If any personal guarantees have been given, owners and directors are liable to pay up to the extent of their personal assets.

Director penalties are to be had. – The insolvency practitioner shall examine each and every director’s conduct to see if any negligence or dishonesty has occurred. If any, the director shall be held personally accountable as well and may even face legal consequences.

Brand will be marred. – Insolvency does not leave one unscathed. It can leave a scar on the business and its brands to the point that customers, investors, business partners and suppliers will withdraw their support.

Insolvency is not yet the end although it sure is close to it. Experts therefore suggests that companies must act really fast and smart in order to stop sinking deeper. It may take a lot of effort to rise back up and keep from drowning but believe us when we say this; with the right methods insolvency can be solved. Many have and so can you.

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Why Go For Members’ Voluntary Liquidation or MVL

Members-voluntary-liquidationWhen do you frequently hear companies close down? Oftentimes it’s during those instances where they get buried in debt, economy is down and losses abound, market interest drops or when sales have plummeted. What most people fail to realize is that a winding up can also occur even with a fully operational and solvent company. This is where the Members’ Voluntary Liquidation or MVL comes into the picture.

A Members’ Voluntary Liquidation is a resolution for willingly winding up a business by its owners, directors and shareholders who have the power to appoint a liquidator or winding up practitioner. The MVL is not an insolvency procedure and as a matter of fact can only be taken by entities who are not debt heavy, who have an adequate ratio of cash inflow versus outflow and who are considered fully operational. This also makes it a necessity for companies who want to take an MVL to pass a statutory declaration of solvency as it is deemed illegal for you to take it under the guise of an insolvency case. Should you do so, that will put you criminally liable.

But it doesn’t make sense just yet. Why would a solvent business want to close shop and liquidate its assets? Is it actually feasible and legal? When is it a valid and necessary procedure?

There are several reasons as to why owners, directors and shareholders would want to get a Members’ Voluntary Liquidation rolling and the list below enumerates some of the most common reasons behind it.

  • Accomplishment of Goals and Achievement of Purpose

Every entity or organization was built and founded upon several reasons and numerous objectives. There are those where upon completion of these will have to cease to exist. If the very purpose of the organization has been attained or even if it has been lost, the business may want to liquidate in order to redistribute its assets to its stakeholders.

  • Death, Resignation or Retirement of a Vital Member

Some entities find themselves heavily dependent upon the expertise and talents of a few or a single employee that once such professional has been lost, threats show themselves left and right. To avoid aggravating the situation, an MVL can be an option.

  • Retirement or Reinvestment Purposes

After working for long years, owners may want to retire and use their share in the business this way. In some cases they may want to venture out on other businesses and close the one they have at the moment. These will require a Members’ Voluntary Liquidation to take place to turn into cash all fixed assets as well as fulfill remaining obligations.

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How to Break the Insolvency News to Employees

business-insolvencyOne of the worst news that a business owner and entrepreneur can get is one of insolvency. It’s awful and really heavy on the shoulders. After all, no business person opens up shop with the end goal of closing it down. You want it to strive, to grow, to expand and to survive the years to come. What’s worse than knowing this news is relaying it to your team or to your employees. It’ll surely be bad news but you’ve got to do what you got to do. On that note, has some tips on how to break the insolvency dilemma to them.

Get your facts straight. – You first have to gather all your evidences. Sure, you don’t have to necessarily get into the nitty gritty of everything but you need your facts and you need them so you can better explain the situation. You don’t want to exaggerate or give false information. That’s not the way to go.

Come up with solution options and a timetable. – When insolvency looms, companies need to look into options and alternatives. This includes having a timetable of tasks and errands to do. You need to have this in check too so you can tell your employees of the measures being done to solve the problem and have them in full cooperation.

Keep them rightly and aptly informed. – They have to be clued-up timely, correctly and appropriately. Eventually, everyone in the company will get the news and you don’t want them to make speculations and come up with the wrong ideas. There are after all red flags and warning signs that your staff can notice. It’s best to tell them than keep them second guessing or making the wrong assumptions.

Tell them of your plans. – What do you plan to do? How are you fixing the problem? You need to tell them too. This way, cooperation will be upheld as mentioned earlier. Furthermore, should liquidation be on the rise your employees will have a chance to prepare themselves. They are after all striving to provide for themselves and their families. Catching them off guard can cause a huge turmoil in their income streams. Good employers should not be selfish. They watch out for their staff too.

Breaking the insolvency news is never easy but if you have the above tips from in mind, then things should run more smoothly.

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