Running more than one company can make financial problems feel especially complicated. One business may have reached the point where it cannot continue, while another remains profitable and capable of meeting its commitments.
In many cases, you can liquidate one company and keep another trading. However, you need to consider how closely the businesses are connected. Shared assets, intercompany loans, guarantees and similar company names can all affect what happens next.
Managing multiple companies?
If one of your businesses is closing, it’s important to understand the potential impact on your other companies. Speaking to Anderson Brookes can help you to understand your options and move forward with confidence.
Can I Liquidate One Company and Keep Another Trading?
The simple answer is usually yes. A limited company has its a separate identity from the people who own or run it. It is distinct from its directors, shareholders and other companies within the same group.
This means the liquidation of one company does not automatically place another company into liquidation. You can therefore have one company in liquidation while another continues to:
- Serve its customers
- Employ staff
- Pay suppliers
- Enter into contracts
- Generate revenue
- Meet its tax obligations
You can also normally remain a director of the trading company. Liquidation alone does not automatically disqualify you from acting as a director.
The position becomes less straightforward when the companies share money, property, employees or contractual obligations. When liquidating one company, it is important to establish exactly what belongs to each business.
Why Might One Company Fail While Another Remains Viable?
Two companies with the same director can have very different financial positions. One may have lost a major customer or contract. Another may operate in a stronger market. One could have historic HMRC arrears, supplier debts or unsustainable finance payments, while the other has remained profitable.
This does not necessarily mean both companies need to close. The company experiencing financial difficulty should be assessed on its own circumstances. If it cannot pay its debts and has no realistic prospect of recovery, a CVL may provide a formal way to close it.
A Creditors’ Voluntary Liquidation allows the directors of an insolvent company to appoint a licensed insolvency practitioner. The practitioner then deals with the company’s assets, creditors and eventual closure.
The other company can continue if it is genuinely viable and able to meet its own obligations. It should not depend on money or assets that properly belong to the insolvent business.
Check How Liquidation Could Affect Your Other Company
Tell us how the two businesses are connected. We’ll help you understand what should be reviewed before liquidating one company, moving assets or making changes to the other business.
When Could Liquidation Affect Your Other Company?
Although companies are normally separate, their finances and operations can become closely connected. This is common where the same people own or manage both businesses.
Several areas need careful attention.
Intercompany Loans
One company may have lent money to the other. These transactions should appear clearly in both companies’ accounting records.
If the solvent company owes money to the company entering liquidation, the liquidator may seek repayment. That money is an asset of the insolvent company and may be needed to provide a return to its creditors.
The demand for repayment could place pressure on the surviving company’s cash flow. Its ability to repay should therefore be considered before the liquidation begins.
The opposite situation may also apply. If the insolvent company owes money to the trading company, the trading company may need to submit a creditor claim. There is no guarantee that the full balance will be recovered.
Guarantees and Security
Check whether either company has guaranteed the other’s debts.
For example, a bank may have provided finance to one company on the condition that another company acts as guarantor. The lender may be able to pursue the guarantor if the borrower defaults.
You may also have signed a personal guarantee. If so, the lender could pursue you personally for the guaranteed amount, regardless of whether your other company remains successful.
Review loan agreements, leases, asset finance arrangements and supplier credit terms. Do not assume the companies are entirely separate until you have checked the relevant documents.
Shared Bank Accounts or Payments
Each company should have its own bank account and accounting records.
Problems can arise if income belonging to one company is paid into the other company’s account. The same applies if one business regularly pays the other’s bills without recording the payments correctly.
Before liquidation, identify any money that may need to be returned or properly accounted for.
Shared Employees, Premises and Contracts
The companies may share staff, office space, equipment or customer contracts.
You need to establish which company employs each person and which business is named on each agreement. Contracts do not automatically move to the surviving company simply because both businesses have the same director.
Employment, lease and customer arrangements may need specialist review before any changes are made.
Are the companies financially connected?
Intercompany loans, guarantees and shared payments can affect both businesses. Get clear advice before money is demanded, repaid or moved between the companies.
What Happens to You as a Director?
You do not normally lose the right to manage your other company simply because one business enters liquidation. However, your role in the insolvent company changes.
Once a liquidator is appointed, control of that company passes to them. You must provide its records, explain relevant transactions and cooperate with any enquiries. Our guide to what happens to a director during liquidation explains these responsibilities in more detail.
The liquidator will also review the conduct of the directors. This is a standard part of the process and does not mean wrongdoing is assumed.
Your actions are particularly important once you know, or should reasonably know, that the company is insolvent. At that stage, your responsibilities place greater emphasis on protecting creditors. The Insolvency Service confirms that directors have specific duties when a company becomes insolvent, whether it continues trading or has stopped.
You should avoid:
- Taking on credit the company is unlikely to repay.
- Paying selected creditors without a proper commercial reason.
- Removing company money or property.
- Continuing to increase creditor losses.
- Moving work or assets to another business without proper consideration.
- Hiding or destroying company records.
Acting early and keeping clear records can help demonstrate that you have treated creditors responsibly.
Keep Company Assets Properly Separated
Assets belong to the company that purchased, owns or has legal rights over them. They do not belong personally to the director. This can include:
- Vehicles and machinery
- Stock and materials
- Office equipment
- Cash in company bank accounts
- Websites, domain names and intellectual property
- Customer lists and goodwill
- Outstanding invoices
You cannot simply move these items into your other company before liquidation. A liquidator will examine the ownership and disposal of company assets. If an asset was sold or transferred before liquidation, they may consider whether the insolvent company received a fair value.
Your other company may be able to purchase assets. However, the transaction should be transparent and supported by a reasonable valuation. The money paid should go to the insolvent company rather than to you personally.
Giving an asset away or selling it for significantly less than it is worth may be treated as a transaction at an undervalue. The liquidator may seek to recover the asset or its value.
This does not mean that all transactions between connected companies are prohibited. It means they need to be conducted properly and documented clearly.
Don't move assets between companies without advice
Vehicles, equipment, stock, cash, websites and customer information may belong to the company entering liquidation. Any sale or transfer may be reviewed, including whether the company received a fair value.
Can Both Companies Use the Same Name?
Company name restrictions are one of the most important issues to check. Section 216 of the Insolvency Act 1986 can restrict a director from becoming involved with a business that uses the same or a sufficiently similar name to a company that has entered insolvent liquidation.
The restrictions may apply to a registered company name or a trading name. They generally last for five years and can affect anyone who was a director or shadow director during the 12 months before liquidation.
There are limited exceptions, but strict conditions and deadlines can apply. You should not assume that an existing company is automatically exempt.
The government’s guidance on reusing an insolvent company name warns that a breach can lead to prosecution, disqualification and personal liability for debts incurred while the prohibited name is being used.
Get advice before changing names, transferring a trading style or promoting the continuing business to former customers.
Planning to use the same name?
Company name restrictions and asset-transfer rules may apply, even when the second company already exists. Check the position before changing names, transferring customers or buying assets.
Is This the Same as Running a Phoenix Company?
Not necessarily. If your other company is already trading independently, it does not automatically become a phoenix business because another company you direct enters liquidation.
The position may need closer consideration if the surviving company takes over:
- The insolvent company’s assets
- Its employees
- Its customers or contracts
- The same trading premises
- The same or a similar name
- Substantially the same business activities
A phoenix company can operate lawfully when the relevant rules are followed. Assets must be acquired properly, company name restrictions must be respected and creditors must not be deliberately deprived of value.
Problems arise where assets or business opportunities are moved away from an insolvent company without fair payment.
There is also an important difference between maintaining an established second company and closing a company and starting another. Starting again may involve forming a new legal entity and acquiring the old company’s business or assets. An existing company may already have its own contracts, customers and trading history. In either case, professional advice can help you understand what is permitted.
Steps to Take Before Liquidating One Company
If one company is struggling but another remains viable, start by reviewing them separately.
- Assess each company’s finances.
Check cash flow, assets, liabilities and future commitments. - Identify intercompany balances.
Confirm which company owes money and whether repayment is realistic. - Review guarantees and security.
Check whether you or the other company are responsible for any borrowing. - Confirm asset ownership.
Gather invoices, finance agreements, registration documents and valuations. - Separate payments and records.
Make sure each business uses the correct bank account and accounting system. - Review shared contracts.
Establish which company employs staff, occupies premises and supplies each customer. - Check company and trading names.
Consider Section 216 before continuing under a similar identity. - Avoid making informal transfers.
Do not move money, customers or assets before receiving regulated advice. - Speak to a licensed insolvency practitioner.
Early advice can help protect the viable company while ensuring the insolvent company is dealt with correctly.
Liquidating one company does not need to become a crisis across every business you operate. The sooner the connections are identified, the more clearly you can plan the next steps.
Frequently Asked Questions
Can creditors pursue my other company?
Creditors cannot usually pursue another company simply because it has the same director or shareholders.
They may have a claim if the other company owes money, has guaranteed a debt or has received assets improperly. A creditor may also take action under the terms of a contract involving both businesses.
Can my other company buy the assets?
Potentially, yes. The assets should be valued, and the sale should be handled transparently. Once the liquidator is appointed, they will control any sale. Their responsibility is to obtain an appropriate outcome for the insolvent company’s creditors.
Do not agree an informal price or remove assets before taking advice.
Can I move customers to the other company?
You should not assume that customers, contracts or goodwill can be transferred freely.
A customer may have a contract with the insolvent company. The contract may require consent before it can be assigned to another business. The customer relationship or goodwill may also have a financial value.
Any transfer should be reviewed and documented properly.
Can I remain a director after liquidation?
Yes, in most cases. Liquidation does not automatically stop you from being a director of another company.
Restrictions may apply if you are disqualified or if you breach company name rules. Your conduct in the insolvent business will also be reviewed as part of the liquidation process.
What if my other business is a sole trade?
A sole trade is not legally separate from you in the same way as a limited company.
This means your personal finances and sole-trader liabilities may be more closely connected. The outcome will depend on whether you have provided guarantees, owe money to the company or have acquired any of its assets.
Discuss the full position with a licensed insolvency practitioner before moving money, work or property between the businesses.
Protect the Company That Can Still Move Forward
Having one company in difficulty does not necessarily mean you need to close another viable business. However, the separation between them must be genuine and supported by clear records.
At Anderson Brookes, we can review both companies and identify any intercompany debts, shared assets, guarantees or name restrictions that could affect the liquidation. Our licensed insolvency practitioners will explain your options in plain English and help you avoid actions that could create further problems.
Speak to Anderson Brookes for free, confidential guidance. Call us on 0800 1804 935 to discuss liquidating one company while keeping another trading.
There is no pressure and no judgement. We are here to help you take the next step with confidence.