Whether it’s an embarrassing blip or a living nightmare, having a company fail is seldom a pleasant experience, and emotions may be running high in the failure’s aftermath regardless of what led to it.
So, if you’re in such an unenviable position, you must take time to weigh up your options after your company fails and consider the following before deciding how to proceed.
See if the company can recover.
If the company is struggling with debts it cannot repay, it doesn’t automatically mean it has to close. As soon as you notice signs that the company might be insolvent, you should contact a licensed insolvency practitioner for advice on how to proceed.
Depending on the volume of the debt, the company could remain operational while repaying what it can afford on a monthly basis. Alternatively, restructuring through an administration may be more appropriate. If it’s in the creditors’ best interests, it might be possible to pre-arrange the sale of the company’s assets to a newly-formed limited company, free from the debts of the old. Strict criteria must be adhered to for this to proceed, and restrictions surround the reuse of the old company’s name or one similar enough to suggest association.
If, however, the debts are of such a level that recovery isn’t feasible, you should close the company through a voluntary liquidation before the creditors force it into compulsory liquidation via a winding-up petition.
Certain arrangements will only be appropriate in specific scenarios. You should speak to a licensed insolvency practitioner before setting your heart on any of these.
Don’t take it personally.
Businesses and the companies formed around them take up a lot of time and energy. If these fail, it can be frustrating, and even heart-breaking. However, as much as it can hurt to see a labour of love fail, you should try not to take it personally. Even with the best idea, circumstances surrounding the company’s failure could be out of your control, so don’t beat yourself up about it.
Take time to reflect.
Once you’ve separated the company’s failure from yourself, you should analyse what led to it. Some reasons for failure are common and affect many failed companies, lack of funds, too niche or competitive a market, an unsustainable business model etc. Other times, a sudden, unexpected debt or another change in circumstances can leave a once profitable company in a difficult position.
In an indirect counterpoint, as director, your actions might have contributed to the company’s failure. In which case, you should take some time after the company’s closure to reflect on those actions and how, if faced with similar circumstances again, you might act differently knowing what you do after having your company fail.
Change of career path.
Although you may have accrued experience in your business’ industry, you can change your career path after the company closes. Starting a new business in a different sector could be an option, or you could pursue employment if you’re happy to work for someone else.
Director bans are often restricted to those found to have acted against the company’s best interests or those who’ve committed wrongful or fraudulent trading. Similarly, in the UK, bankruptcy restrictions relate to personal and sole trader debts rather than those related to limited companies. They shouldn’t affect directors unless they’ve acted outside of the company’s best interests.
If your company fails, it can be embarrassing, and feel as if you’ve personally failed. However, it’s important not to take the failure to heart. Instead, your time would be better spent reflecting on what actually went wrong, why the company failed, and how you might avoid a repeat if you were to start again. There may still be opportunities to salvage the company or the business within, though you should seek professional advice before setting your heart on any specific option. Depending on your situation, you could also start a new business or change your career path to pursue employment. However you proceed, don’t let your company’s failure define your future.