BWA logo

Liquidation or Restructure? How to make the right choice for your business

Understanding the difference between company liquidation and company restructuring will help you make an informed and practical choice for the outcome of your business.

Facing financial difficulties in your business can feel like being stuck at a crossroads. Business owners are often left wondering whether to take the route that leads to closure (liquidation) or the one that leads to a new direction (restructuring). Both options come with their own set of challenges, and deciding which path to take requires careful consideration of many factors. This article aims to be your map, helping you choose the right direction for your business.


Liquidation: The Last Resort

Liquidation is typically the route of last resort when a company can no longer meet its financial obligations. It involves appointing a liquidator, who then takes on the task of selling the company’s assets to generate funds. These funds are distributed to creditors and shareholders in a legally structured manner.

Consequences and Liabilities

The ramifications of liquidation are significant. Once the process is complete, the company ceases to exist as a legal entity. Company directors may also face liabilities, particularly in cases of mismanagement or unpaid taxes. It’s the end of the road for the business, but it also provides a clean slate to address debts comprehensively.

Role of the Liquidator

The liquidator’s role is crucial. They gather all company assets, manage the company’s affairs, and oversee the sale of properties to benefit creditors. Their involvement ensures legal compliance and propriety throughout the process.

Insolvency Practitioners to the Rescue

Liquidation must be managed by a registered insolvency practitioner. Their expertise ensures that the process adheres to legal requirements.

Company Restructuring: The potential lifeline

Company restructuring aims to turn the ship around, addressing financial problems by making significant changes to the company’s operations, structure, and financial strategies. The goal is to restore profitability and ensure long-term viability.

Tools of Restructuring

The toolbox of restructuring includes refinancing, debt restructuring, asset sales, organisational changes, and operational improvements. Each strategy is tailored to bolster the business, overcome trading losses, and create sustainable value for stakeholders.

Expert Guidance

Insolvency practitioners play a pivotal role here. They offer legal compliance, diagnostic expertise, and the ability to guide a company through the restructuring process. Their insight helps pinpoint the root causes of financial distress and devise practical solutions.

Liquidation or business restructure

Liquidation or Company Restructuring? Making the Decision

Choosing between liquidation and restructuring is not a decision to be taken lightly. Here are three key points to help you decide:

  1. Evaluate Financial Distress:  Conducting a comprehensive financial assessment is the first step. If your business’s debts far exceed its assets with no foreseeable path to profitability, liquidation may be the best option. On the other hand, restructuring might be a viable option if the business model has potential but is temporarily under strain.
  2. Future Viability and Recovery Potential: Assess the potential for recovery. Ask yourself if there are realistic prospects for pivoting operations, improving efficiencies, or discovering new revenue streams. If the answer is yes, a company restructure could be the lifeline. This requires deep analysis and strategic planning, often necessitating expert advice.
  3. Stakeholder Impact and Liabilities: Consider the implications for stakeholders, including shareholders, employees, and creditors. Liquidation often leads to asset selloffs at reduced values and job losses. Conversely, restructuring offers a chance to preserve relationships, protect jobs, and rebuild trust within the market.

The Smartest Decision is Acting Early

In the grand narrative of business, facing financial challenges early, head-on, and with a well-informed strategy is crucial. Procrastination exacerbates problems, leading to fewer options and more severe outcomes.

Engaging with an insolvency practitioner early offers a broader range of tailored solutions, providing hope when it seems scarce.

While restructuring can provide a lifeline and hope for turnaround, liquidation provides finality and a clean break from insurmountable debts. Both options have their place and time, but the essence lies in acting responsibly and timely. Insolvency practitioners bring expertise and empathy to help ensure that the journey—whether to restructure or close—is as smooth as possible.

Early intervention, expert guidance, and informed decision-making should be your compass, guiding your next steps. This helps lay the groundwork for future endeavours, ensuring that even amidst the most challenging times, you don’t feel lost.

Ready to speak with an insolvency expert? Bryan Williams is an accredited RITANZ member and a fellow of INSOL International. BWA Insolvency has been helping businesses facing financial challenges since 1994. Contact Bryan today for a confidential, no-obligation chat.

Latest insights

Liquidation or Restructure? How to make the right choice for your business

Insolvency in NZ: Quarterly Market Report Mar 24

Insolvency in NZ: Quarterly Market Report Dec 23

Navigating the Voluntary Administration Process: A Step-By-Step Guide

Company Restructuring in New Zealand: Everything You Need to Know

Understanding the role of an Insolvency Practitioner