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What happens to debts after liquidation?

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Outstanding debts following company liquidation

Written by Jonathan Munnery

One of the main benefits of trading as a limited company is that directors are given the protection afforded by limited liability. This means that the company and its director are classed as two separate legal entities; in other words, the company is responsible for its own debts.

If a company becomes insolvent and subsequently enters a formal liquidation process, any company debts which remain after all assets have been realised, will be written off. However, in some instances, directors can find themselves responsible for the debts of their insolvent company following liquidation.The main reason for this because a director has provided a personal guarantee for company borrowing.

A personal guarantee may be requested by a bank or other finance providers as a condition of the loan. As long as the company is able to make the monthly repayments on this borrowing, the director will not be personally liable. However, if the company enters liquidation, the personal guarantee will crystallise, and responsibility for repaying the borrowing will transfer to the individual who provided the guarantee.

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Common Liquidation Questions
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Who initiates a Creditors' Voluntary Liquidation?

A CVL is a voluntary liquidation process which is initiated by the director(s) of a distressed limited company. Many company directors choose to place their company into liquidation when it is clear it has no future.

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What is the role of an insolvency practitioner in a CVL?

As a formal insolvency process, a CVL can only be entered into under the guidance of a licensed insolvency practitioner who will adopt the role of the company’s liquidator.

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Depressed Businessman
What is a Creditors' Voluntary Liquidation

A Creditors’ Voluntary Liquidation – or CVL – is a formal insolvency process for insolvent limited companies.

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