COVID-19 has dealt a severe blow to the cash flow of countless companies. Many businesses which performed well prior to the pandemic, may now have become unviable. As a result, these companies face insolvency and will either require investment to shore up losses or a liquidation to wind up the company. The question often facing directors is that, if funds are available, should they put them into the insolvent company or set up a new company?
At Crowe we help directors of insolvent companies make the best decisions and make the best of what is a difficult situation. In this second part of our two-part article, our restructuring and insolvency team answer some of the frequently asked questions from directors of ailing companies.
In short, priority is given to the liquidation costs, so if a company has fixed assets or stock that can be sold or debts that can be collected, the liquidator can use these assets to pay the costs of the liquidation and there is no legal requirement for the directors to cover these costs from their own resources or put cash into the company at the start of the liquidation.
Frequently asked questions from directors of ailing companies - Part 1&2