Welcome to our latest blog in this series about the options available to insolvent limited companies. We are a couple of days late this week due to the Jubilee Celebrations; we hope you had a really great extra-long weekend.
You can catch up with the rest of the business insolvency series in the posts linked at the bottom of this blog.
We conclude our look into business insolvency with part one of two blogs about Creditor’s Voluntary Liquidation (CVL). Part 2, the CVL Process will be published this coming Monday.
If the results of your Business Health Check aren’t very promising and you think that continuing to trade might be just too much for you to handle then CVL is something you might want to look into.
What is a Creditor’s Voluntary Liquidation?
Creditor’s Voluntary Liquidation is referred to by a number of other names, CVL, voluntary liquidation, business bankruptcy or simply just liquidation.
Sometimes a company is overwhelmed by crippling debt, it is not able to trade out of cashflow problems and does not have enough money to pay its debts as and when they fall due. In these circumstances the company is insolvent and the only appropriate course of action is for the directors to cease trading and seek professional advice.
Voluntary liquidation is the most common way for directors and shareholders to deal voluntarily with their company’s overwhelming debts.
A voluntary liquidation would stop demands from company creditors and allow the company to write off 100% of its debts. It would also enable the directors to close the company as soon as possible.
If you have been experiencing pressure from creditors such as bailiff action or a winding up petition you can still put the company into Voluntary Liquidation. Once your insolvency practitioner has given notice to the company’s creditors, any bailiff action against the company assets is void and therefore they tend to put all action on hold pending the appointment of a Liquidator.
When might a CVL be appropriate over other forms of insolvency and turnaround advice?
With a voluntary liquidation the company will cease to trade, its assets are realised (sold) and employees dismissed.
Where it may be possible to trade out of the situation, or continue in business, other insolvency procedures such as company voluntary arrangement (CVA) need to be considered. It is for this reason that directors should contact a licensed insolvency practitioner who can guide them through the options.
Voluntary liquidation is most appropriate where:
- The company is insolvent (use these three quick tests to find out if your company may be insolvent)
- A CVA is not appropriate
- The company does not appear to be viable even if restructured
- The directors do not feel they have the finances or determination needed to rescue the company
Advantages of CVL
Voluntary liquidation can have a number of major advantages for directors and shareholders of a company that has overwhelming debt problems.
The main advantages are:
- Allows you to step away from the insolvent company with no further liability (unless debts have been personally guaranteed)
- Write off 100% of what the company owes
- It shows creditors you have done the right thing by taking professional advice and can steer you away from the implications of wrongful trading
- A very quick, cost-effective way of formally closing down a company and complying with your duties as a director
- Can be funded using company assets such as cash at bank, sale of assets, book debts etc.
- Employees and potentially directors can make a claim from the National Insurance Fund and receive payments for outstanding wages, holiday pay, pay in lieu of notice and redundancy
- Stop demands from creditors
- Provide peace of mind to the directors and enable a fresh start free from debt
Entering a voluntary liquidation means that your insolvency practitioner will become the point of contact for all your creditors, this means that you do not have to take any more harassing phone calls and any threatening letters can simply be forwarded on for them to deal with.
It is the liquidator’s (Insolvency Practitioner’s) duty to deal with all creditors and realise the company assets. The directors are removed from office and are free to make a fresh start.
If you would like any help or advice with decisions on liquidation or any of the other insolvency and turnaround options we have covered in this series then remember that Focus Insolvency Group are here to offer you free and impartial guidance. Get in touch today.
On Monday we will bring you part 2 of our guide to CVL’s with a look at the process of liquidation. If you have any comments or feedback please let us know in the comments below or send us an email.