Okay, a bit late, but here's The Red Squirrel's Guide To Liquidation

(First off, it must be said that any examples used in this guide are for illustrative purposes only and in no way are intended to reflect actual events or companies either in the past, present, future or alternative universes.)

Right, well you gave it your best shot at running a business - you tried hard (probably not your hardest, but hard anyway) but it just didn't work out. In fact, it worked out so badly that you now owe lots of people quite a lot of money and have no means to pay it. But that's okay, because you're a Limited Company and you can enter the wacky world of LIQUIDATION! Yay, go you!

(N.B. A Limited Company means that the liabilities of such a company - the humungous debts for example - are limited to the company and you're not liable personally. So basically you walk away scott free and everyone else loses out. Liquidation is fun!)

An example of this would be a venture to provide bedside phones in hospitals, where you borrow a lot of money for the infrastructure but your returns aren't enough to meet your interest payments and eventually you run out of money in your bank account and with no means of paying wages or loans are forced to close. A further example would be if you ran a festival in such a way that should it rain and no-one turned up then you had no means of paying all those companies that had provided their services to you during the festival.

Sometimes these things just happen. Some people would say that only an utter incompetent fool would be involved in running such a business so ineptly - but not Red Squirrel, no sirree! Pure accident most of the time...

Anyway, you've now chosen to enter liquidation so the first thing to do is appoint a liquidator. The liquidator operates on behalf of the creditors (those you owe money to) and is basically a lawyer looking for his cut. They pretty much all charge the same (several hundred pounds an hour) so choose who you like. Of course, should you choose one you're mates with then this can help you further down the line. The liquidator will of course act entirely impartially at all times and will not let you being mates affect their decisions regarding the liquidation process IN ANY WAY WHATSOEVER. No, that would be naughty. They'd never do that.

The next step is to call a creditors meeting and gather all those people you owe lots of money to into one room, tell them you owe a combined total of x squillions pounds, tell them the assets are currently at £12.50 and watch most of them trudge out of the room shaking their heads. The liquidator, helpfully charging several thousand pounds for calling the meeting, will inform everyone that actually they can probably get some money back from people who you money but sadly - seeing as they're charging so much - that will all go directly to them. Watch more people trudge out of the room muttering darkly.

For example, you owe 400,000 pounds and have debtors (those that owe you money) of 20,000 pounds. The liquidator will pitch his fees at 25,000 pounds and act all hurt when someone suggests that the whole process is just another way for the liquidator to make money. Of course not, the liquidator is working in the creditors interest - not their own or yours.

And that's that! Take the liquidator down the pub, buy him a pint and a ploughmans and walk away whistling happy tunes in the knowledge that you've actually lost nothing and those people you saw crying on the way out of the meeting should just accept that business is business.

There is however a twist. Oh yes.

You see, the above only applies if you were a GOOD business owner and did things right. If you were a BAD business owner and did naughty things then you may be in trouble. Then the limited liaibility doesn't apply and you may just be coughing up some of your hard earned (fleeced?) dough.

An example of a naughty thing would be knowlingly selling defective goods at full price, taking the money and then closing down the business with the money moved offshore. This is known as illegal trading. Another, less known example would be to run a festival in such a way that halfway through you knew you had no means of paying any bills ever again and were 'technically insolvent'. At this point you should cease trading. If however you then deliberately procure further services or goods (say, from a festival catering company) knowing that you can't pay then this is known as wrongful trading.

Illegal trading is a criminal offence, wrongful trading is a civil offence punishable by a compensatory fine and disqualification as a director for up to 15 years.

But no fear, because the only people who can do this to you are the DTI - and they can only act on a report written to them by, yes you've guessed it, your mate the liquidator. This report is confidential and can never be seen by those you may have wrongfully traded with so you're pretty much in the clear because your mate won't stitch you up and it can't be proved that he didn't report you anyway. A win-win all round!

Should you however have done this to lots of companies and they get a lawyer involved then your mate may just be forced to take you to court to recover a compensatory sum from you personally. And this is the beautiful bit, because any money recovered through court action doesn't go to the wronged person, oh no, it goes into the main 'pot' of money that just happens to owe money to the liquidator. And of course court action will push the liquidators fees up to just above the total amount recovered.

Even better, the wronged person - by now crying with frustration and rage at the injustice of it all - has no legal redress whatsoever!

So that's liquidation, a process designed to make lawyers money, offer total protection to scumbags who wrongfully trade and provide absolutely bugger all to those people who actually lost money due to your incompetence, wilful negligence and criminal activity.

So next time you're feeling down about running a business, just consider running up huge debts and going into liquidation. It's a laugh, innit....