The poor management of cash flow is the main reason for the Failure of Liquidation. It is possible to have a paper profit but still have problems simply because there is insufficient cash flow to pay creditors.
Reasons for Failure of Liquidation
A company may be dissolved for several reasons. Some of them are:
(1) No visionary management, if you notice that your company does not have the money to pay its debts as they fall due, then you should consider voluntarily going into liquidation.
(2) Day by day increasing debt and inability to pay it, If your company is insolvent and you fail to prevent it from incurring further debt by placing it into administration or liquidation, then as a director you could become personally liable for the debts incurred.
(3) Unnecessary fictitious assets raising in accounts, borrowing money on the basis of future revenue is a typical reason for business insolvency.
(4) Involvement of company in fraudulent activities, insufficient funds and excess stress over increasing piles of bills is an indication that it may be time to talk to one of our specialists at CRS Insolvency Services.
(5) The exploitation of minority shareholders, these are the risks associated with the financial structure and transactions of the particular industry.
(6) High level competition in the market, if you frequently find yourself suffering from stress, depression, anxiety and insomnia over the thought of continuing to trade whilst in debt, then liquidation may be the answer for you.
(7) Frequent change in government policies, the liquidator takes control of all the company’s unsecured assets, which are sold to repay the creditors.
(8) Absence of profit planning control and continuity of losses for several years, very common, high-risk ventures generally include costs to businesses that put the business in debt.
Where management takes a proactive stance, controls the situation and seeks advice where necessary, whilst they will not be immune to the possible downturns of the economy, they will be much more likely to survive. Although many businesses are all too well aware of their problems, they fail to deal with the issues correctly. Problems compound and multiply. These common issues, if they’re allowed to continue, resolve themselves into sudden unexpected crises.