Whenever a business, whether it be here on the Isle of Man or on the adjacent island, hits the headlines for going into liquidation, directors and officers of all types of companies would be well advised to take note.

Whatever the size of your company, its liquidation is governed by the same legislation, and the laws relating to directors duties and responsibilities are equally applicable to any person who is either named or is deemed to have acted as a director of that company, whether they are a director of a large multinational company, a professional director working within the island’s regulated industries, or the director of a small family firm.

What should you know?

There are many reasons why a company can be placed into liquidation and not all of them are headline news.

A company may have simply come to the end of its useful economic life, and the directors of that company may have decided that the appropriate way to wrap the company up is to liquidate it.

Alternatively, through no fault of its own, a company may have encountered financial difficulties and may be struggling to survive on a daily basis, in which case the directors should consider closing the doors quickly.

Whatever the reason for a company being placed into liquidation it is important that the directors act appropriately, and don’t inadvertently get themselves into trouble.

It is often lost on directors and company officers that although their powers generally cease once the liquidation process has commenced, their responsibility to the company still stands.

In fact, directors should note that the responsibility to the liquidation process is in some respects effective for the 12 month period leading up to the commencement of the liquidation and until the liquidation is finalised.

So, even if you are not thinking about putting your company into liquidation today, if it’s imminent, or even a possibility, you should be aware that you have certain responsibilities to the company which a liquidator will check that you’ve adhered to.

So, should I fear liquidation?

Not necessarily.

Directors clearly don’t want to be on the wrong end of a compulsory (i.e. Court appointed) liquidation, as these kinds of liquidations are normally instigated by someone else, such as an unpaid creditor or maybe a regulatory body, but liquidation shouldn’t be feared in all situations.

For some directors and company officers it can be a blessing to be free from the stresses of dealing with a struggling company, offering them a fresh start to either build another business or follow a career in employment.

There are many other benefits to voluntary liquidations such as outstanding debts are often written off, and legal action against the company is halted, but without a doubt the best benefit of a voluntary liquidation is that the directors avoid the court process.

By voluntarily choosing to liquidate the company, you can avoid being petitioned through the courts and will be able to demonstrate to the public that liquidation was a company choice rather than a hostile creditor action, as is often the case with the liquidations which receive media attention!