Reversing a company liquidation is it possible or can you even reverse a company Liquidation?
The process of selling off a company’s assets in order to pay its debts and wind up its operations. It is often seen as the final step for a struggling business, as it signals the end of the company’s ability to continue trading.
However, it is possible for a company to emerge from liquidation and resume business, depending on the circumstances surrounding the liquidation and the efforts of the company’s management and stakeholders.
There are two main types of liquidation: voluntary and involuntary. Voluntary liquidation occurs when a company’s directors or shareholders decide to close down the business and initiate the liquidation process. Involuntary liquidation, on the other hand, is when a company is forced into liquidation by its creditors. In both cases, the company’s assets are sold off in order to pay off its debts, and any remaining assets are distributed to the shareholders
Why would you want to reverse a Company liquidation?
There are several reasons why a company might want to reverse its liquidation. One common reason is that the company has found a way to improve its financial situation and believes it can continue trading profitably. This might involve securing new funding, restructuring its debts, or finding a new market for its products or services.
Another reason might be that the company’s directors or shareholders have changed their minds about closing the business and want to keep it running. In some cases, the company’s employees may also be motivated to try to reverse the liquidation in order to save their jobs.
Additionally, the company’s creditors might have an interest in reversing the liquidation if they believe that they will be able to recover more of their debts if the company is able to continue trading.
Overall, the decision to reverse a company liquidation will depend on a variety of factors, including the company’s financial situation, the motivations of its directors and shareholders, and the interests of its creditors.
Reversing a Company Liquidation
The likelihood of a company being able to reverse the liquidation process depends on the method of liquidation chosen. If the company opts for a voluntary liquidation, it may be able to reverse the process if it is able to secure new funding or restructure its debts in a way that allows it to continue trading. This is because the company has initiated the liquidation process itself, and therefore has some control over the circumstances surrounding the liquidation.
Involuntary liquidation, on the other hand, is more difficult to reverse, as the company has been forced into liquidation by its creditors. In this case, the company may be able to negotiate with its creditors and come to an agreement that allows it to emerge from liquidation, but this is often difficult to achieve.
It is possible for a company to reverse the liquidation process, but it depends on the circumstances surrounding the liquidation and the efforts of the company’s management and stakeholders. Voluntary liquidation may offer the best chance of reversal, while involuntary liquidation is generally more difficult to reverse.
Now that we have covered the basics, let’s delve into the different forms of company liquidation and whether the process can be reversed.
Creditors Voluntary Liquidation
A CVL, or Voluntary Liquidation of a Company, cannot be reversed once it has started. However, the directors of a closed company may be able to purchase the assets of the newly-defunct business, such as stock, premises, or even its name. The process for doing this is heavily regulated to protect the interests of the company’s creditors.
Members Voluntary Liquidation
While a MVL Liquidation can potentially be reversed, this can only be done after the company has been closed down. It is not possible to halt the MVL process once it has begun. To reverse the MVL, an application must be made to the High Court within six years of the company’s liquidation, asking them to annul the liquidation.
However, the success of this application is not guaranteed and will depend on the former company directors being able to provide evidence that reversing the liquidation would be beneficial to the company. Simply changing one’s mind is not sufficient grounds for the High Court to grant the application.
Compulsory Liquidation/Winding Up Petition
It is a common misconception that once a winding up petition has been granted by the courts, there is no way to reverse it. The liquidator will typically take control of the company, gather its assets, and sell them off to pay off creditors, after which the company will be closed.
It is possible for the compulsory liquidation process to be stopped and the company returned to the control of its directors, under certain circumstances. This can be done through the use of a “permanent sist,” which is issued at the discretion of the court under Section 147 of the Insolvency Act 1986. While the legislation provides little guidance on when a permanent sist may be granted, the courts will generally consider reversing the compulsory liquidation process if certain criteria are met.
To reverse a compulsory liquidation, a judge must first be convinced that the company’s creditors will not be left out of pocket. This requires the firm’s directors to prove their ability to pay off all debts in full, which may be difficult given that the process has already reached the winding up stage.
The liquidator’s needs will also be taken into account. The court will also consider whether it is in the public interest to grant a permanent sist. If the company’s directors are seen as having poorly managed the company or failed to fulfill their responsibilities, the court is unlikely to reverse the liquidation process.
It is also possible to reverse a compulsory liquidation as soon as the winding up petition has been issued, within seven days, by applying to have the order rescinded on the grounds that the court did not have all the relevant information when making its decision.
In conclusion, it is possible for a company to reverse the liquidation process, but it depends on the circumstances surrounding the liquidation and the efforts of the company’s management and stakeholders. Voluntary liquidation may offer the best chance of reversal, while involuntary liquidation is generally more difficult to reverse. The specific method of liquidation, such as a creditors’ voluntary liquidation (CVL) or a members’ voluntary liquidation (MVL), can also affect the likelihood of reversal.
Additionally, a compulsory liquidation can potentially be reversed through the use of a “permanent sist,” although this requires the approval of the court and is only granted in certain circumstances. It is also possible to reverse a compulsory liquidation as soon as the winding up petition has been issued, within seven days, by applying to have the order rescinded on the grounds that the court did not have all the relevant information when making its decision.
Overall, reversing a company liquidation is a complex process that depends on a variety of factors and is not guaranteed to be successful.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.