Voluntary liquidations and late payments - October 22nd 2024

The number of companies entering voluntary liquidation is growing. Taking this step themselves allows owners to avoid compulsory liquidation where a creditor, shareholder or director obtains a court winding up order. In 2012 there were two voluntary liquidations for every winding up order; in 2023 the ratio was 7:1.

The total number of liquidations has been steadily increasing, although this is partly a reflection of the growing number of businesses in existence. Despite the terminology, voluntary liquidation is usually not truly voluntary but is a means of allowing a business facing financial difficulties to close on its own terms and make plans for the consequences. People may realise that their business is no longer viable but will hope to retain ownership of as many of its assets as they can and perhaps prepare to form a new business in the future.

Tighten up processes

The key to avoiding any sort of liquidation is to keep firm control over the business’s cash flow and profitability. Your accounts need to be in good order and you should ensure payments due to you are collected quickly. Automation of accounting functions and use of new AI tools will help reduce time and resources spent on finance processes. This means payments can be collected faster and will provide an accurate, real-time view of the business’s financial health, enabling firms to take early action to stay on track.

Late payment consequences

According to Intuit Quickbooks, late payments cost SMEs £22,000 a year with 56 million working hours of lost productivity. Research by the Federation of Small Businesses (FSB) indicates this causes 50,000 business closures a year and, the Department for Business and Trade (DBT) says, is “acting as a major brake on growth”.

The DBT intends to consult on tough new laws which, it says, will hold larger firms to account and get cash flowing back into businesses, particularly benefiting small businesses and the self-employed. Other measures include:

• New legislation in the short term that will require all large businesses to report on payments in their annual reports, which will provide clarity on how they treat small firms.
• Stronger enforcement of existing regulations that require large companies to report their payment performance twice yearly on uk.
• Responsible directors at non-compliant companies who do not report their payment practices could face criminal prosecutions, leading to unlimited fines and criminal records if convicted.

The DBT consultation will also consider a range of further policy measures that could help address poor payment practices.