The voluntary liquidation comes as a relief while you decide to shut down your company. It’s vital to have clarity on the liquidation process so you can make informed decisions about what to do next.

Directors step back from taking any action on the company’s insolvency due to the myths they believe. We have listed five of the most common myths about liquidation that continues to exist:

• Directors Will Go Bankrupt.
• You cannot start a new company after liquidation.
• The liquidator works for the creditors.
• If one goes into liquidation, you can’t be a director of other companies.
• Directors can liquidate their own companies.

1. Directors will go bankrupt

Most of the company directors believe voluntary insolvency would undoubtedly affect their personal financial affairs. Your business going into liquidation does not mean you’re going to get into bankruptcy.

The company is an entirely separate entity, so always distinguish your finances from the funds of your business. If you can fulfill the commitments on business loans comfortably, you will avoid bankruptcy.

Exceptional cases can arise, and if you give a personal guarantee to creditors, you will be legally accountable for the repayment of your debt.

2. You cannot start a new company after liquidation

If you’re a company’s director heading to liquidation, you will not be barred from starting up a new business in the future. If you, as a director, have followed legal requirements and completed your responsibilities, you can go ahead and start a new business or serve as a director of the new company.

Voluntary liquidation under the insolvency and bankruptcy code does not affect the ability of a director to receive funds and to start a new business post liquidation.

3. The liquidator works for the creditors

Many company directors believe investors are working with the liquidator. In reality, liquidators do not work for creditors, company directors, or any specific individual.

They can only be appointed by the Central Government under Section 448 of the Companies Act, 1956, and are attached to various High Courts. The liquidators have to collect and secure the assets of the company.

4. If one goes into liquidation, you can’t be a director of other companies

You can serve as a director of as many companies as you want. Unless you’ve been disqualified or barred, it doesn’t matter if one of the companies that you’re working for is in liquidation.

There is a set of rules formed to cover company directors’ conduct. If your company becomes insolvent, the only possibility of obtaining a suspension or disqualification arises if you don’t follow the legal protocol.

5. Directors can liquidate their own companies

As the director of a company, you may believe you can liquidate the assets of your company, but that’s not actually the case. As per the code, the liquidation must be carried out by an authorized liquidator.

It’s important to remember that a duly appointed liquidation professional has to conduct the entire process of voluntary liquidation. The voluntary liquidation process of an insolvent company is highly complex. It involves several steps to be taken in a strict order.

Liquidation can put an end to your insolvency and bankruptcy concerns as it’s the final step to winding up your business. When you evaluate the suitability of liquidation for your company, check with insolvency professionals so that you can make an informed decision. Working alongside insolvency professionals ensures that you proceed in a legal and timely manner.