When Can I Start Trading Again After Insolvency?

If a company enters into insolvency proceedings because it’s no longer able to pay its debts, then by law the company is forced to cease trading.

If a company is liquidated due to insolvency, then as a director you may be wondering what your next steps are: is it possible to continue trading again after liquidation and, if so, how long do you need to wait until you can start trading again?

In this article, we examine the conditions and obligations that company directors face when entering into liquidation, and explain when they’re allowed to start a new company and begin trading again after insolvency.

What Happens to a Company When It Becomes Insolvent?

Insolvency occurs when a company can no longer pay its debts. This can happen for a range of reasons, including a loss of customers, unexpected bills, poor management, or a negative political or economic climate. As the director of a business, market forces are often out of your control, but it’s your duty to ensure the best possible decisions are made on behalf of the business.

There are several routes you can take in order to save your company from insolvency. These include agreements with creditors, corporate recovery plans, downsizing, or selling off parts of the company to save the core. When these options fail, companies have to enter into liquidation.

Liquidation can be voluntary or compulsory. For everyone involved, the most practical solution is voluntary liquidation. This ensures that proceedings are as amicable as possible and that creditors, employees and directors all leave with the best deal possible, given the circumstances.

Compulsory liquidation however is a forced liquidation brought about by the efforts of creditors seeking to regain monies owed to them. A company that owes money can be forcibly closed down by the courts and its assets sold off to repay creditors.

Can a Director Continue Trade With Other Companies?

Liquidation, whether voluntary or forced, ensures that the company in question no longer exists as a legal entity. It has ceased to be, and it’s illegal for it to continue trading.

However, the director of the company can continue trading with another company. While the company is liquidated, because of the nature of a limited liability business, the director isn’t liable for the company’s debts, and any outstanding debts are written off.

A director needs to be able to prove that they weren’t personally responsible for the company entering liquidation, which in practice simply means they weren’t acting against the interests of the company and weren’t corrupt. If this is the case, then it’s perfectly possible and legal for a company director to continue trading with a new company immediately after the liquidation of their old one – there’s no time limit for directors involved in the insolvency.

If it can be proven that a director acted against the interests of the company or was involved in any form of corruption, then the director can be banned from trading for as long as 15 years. This can be enforced alongside a large personal fine and, in severe cases, a prison sentence.

Can I Liquidate My Company and Start Trading Again?

Company directors facing insolvency are not personally liable for their company’s debts. Given that you can start trading with a different company immediately after liquidating another, savvy directors might be wondering if it’s possible to voluntarily liquidate a company and then restart as a ‘new’ company.

This is a common and popular tactic, as it removes the old debts from the equation (writing them off) and theoretically gives you a fresh start, without the burden of creditors. However, this seems far too good to be true, and the reality is that there are a number of factors to consider.

A company director that has voluntarily liquidated their company can start a new one straight away, provided they aren’t found to be at fault. Legally, they cannot use the same name or even a similar name for the new company for a period of at least five years.

This can be a big problem if the brand and name of the company were important, but in some cases the old name and branding can be purchased as an asset and transferred over to the new company entity for continued trading. In other circumstances, a new name is appropriate anyway, but other assets and staff can be transferred to the ‘new’ company to get it off the ground.

Renaming issues aren’t the only problem company directors face when they want to start trading again. Reputation is essential in business, and so it can be difficult (although far from impossible) to secure new lines of credit and investment if you’re associated with a failed company. Banks will ask for large guarantees, while even HMRC can ask for an up-front bond to ensure they get their taxes from you.

Given the complicated implications, it’s wise to seek out impartial financial advice from an insolvency practitioner before commencing trading again.  

How Many Companies Can I Trade With?

By law, there are no limitations on the number of companies a director can be in charge of.  You aren’t limited to one company but can be the director of as many as you desire, although practically speaking there are financial and time constraints to consider!

In theory, it’s legal for a company director to continue trading with one company, even as another of their companies enters into insolvency. Multiple enterprises can even help spread out your risk – as they say, there’s no sense having all of your eggs in one basket.

But while directors can trade with as many companies as they like, they also have to be aware that their reputation is important. The more companies you’re involved with, the more concerned banks and creditors will be that you’re overstretching yourself. If one company fails spectacularly, you will find it difficult to secure credit for future endeavours.

While you can trade with as many companies as you see necessary, it’s integral that you work within your limits.

Contact Irwin Insolvency for Your Free Consultation

With decades of experience dealing with insolvency matters, our licensed insolvency practitioners offer impartial advice to help your business through tough times. If your business is struggling financially, don’t hesitate to contact Irwin Insolvency today for your free, no-obligation consultation.