Bankruptcy and Liquidation Auctions in the UK

Bankruptcy is a legal status of an individual or a company if he is unable to repay its debts to creditors. As per financial terminology, many people also refer bankruptcy as insolvency. Both these terms mean the same with a little difference. The main difference between the two is that in insolvency, legal courts are not involved and the status is not binding. However, in some countries like in UK, the legal terms of bankruptcy remains insolvency. So it is safe to refer bankruptcy as insolvency in these countries.

The main reasons why insolvency happens and may be followed by bankruptcy are poor management, sudden shifts within the market of activity or radical changes within the economy or laws. The road to bankruptcy may be long but when it occurs, the company in trouble may be subject to a variety of steps in order to ensure that all the stakeholders will be able to receive the debts they are owed. This includes not only the main creditors (such as banks and other financial institutions, the state and so on), but also the suppliers, the employees and others.
When a company declares (or is declared) bankrupt, in the UK it falls under the insolvency act that allows for several courses of action.

A common course of action entails debt restructuring, which involves the creditors agreeing to a structure of repayments favorable to the debtor and one that the debtor can follow. This usually comes with a set of conditions that the debtor must follow in order to prove it can raise the money to follow the repayments. These conditions (often involving severe restructuring, cost cutting measures and so on) can be done either by the current management or under the management of an Administrator (as specified in the insolvency Act of 1986). The Administrator usually proceeds to find new capital to power up the business, sell it entirely to new owners who have the funds to run it or split it into more manageable units that can be sold separately or otherwise liquidated.
The last resort in the arsenal of measures regarding bankruptcy is liquidation. When liquidation is required, the company halts its activity and its properties and assets are redistributed. In the UK, this process is also known as dissolution, although technically this is the name for the last step in the process of liquidation.

Sometimes, liquidation is voluntary and it can happen when the shareholders decide it is in their best interest to try to sell out the assets (this may happen, for example, when trying other solutions would incur greater costs, making any other choice unsustainable). Other times, the debtors may handle the liquidation in their own interest, trying to redistribute the assets in order to cover debts owed to them (like foreclosing in the wake of a default).

One of the means by which liquidation takes place is an auction. Sites such as have as main object of activity following insolvency processes and liquidation auctions. At such an liquidation auction, various assets of a company are auctioned off. This may include office buildings, cars, various equipments, any land or property owned by the company but may also include in some instances contracts fulfilled by the company or even pieces of intellectual property such as patents.

Liquidation auctions have as object the fulfillment of claims by various stakeholders. The first claim that has priority is the liquidator himself. Whatever costs he may have incurred must be covered through the liquidation process and the liquidation auctions are the main means of achieving this. Then comes the creditors with a fixed charged (typically suppliers but also banks). Next comes the administration's costs if the liquidation takes places while the company was under administration (this can also happen if the administration process fails to restore the company to profit).

The list of claims continues with the social obligations. Salaries for employers, benefits, insurances, wages, all these need to be taken into account with the one reserve that benefits of managers may be subject to commonly agreed limitations. Retrenchment payments, leave payments and any other kinds of payments owed to or with respect to employees also fall here. Lastly, we find creditors with a floating charge over assets as well as unsecured creditors.

A liquidation auction cannot guarantee that all assets will be sold, neither that all claims will be fulfilled. At dissolution, both claims and assets may be written off if for some reason no other way of dealing with them has been found. Today, online liquidation auctions are tremendously popular and have a higher success rate than classic auctions.

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