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Who Is This For?
If you are a business owner or partner and are unable to pay your debts, you may well be considering entering a Creditors Voluntary Liquidation, or CVL, process. Firstly, let us reassure you that you are not alone. We totally understand that no company owner wants to be in the situation of having to close their hard-fought-for business. We are here to help you through the whole process to make it as smooth as possible.
Let’s establish if a Creditors Voluntary Liquidation is the right option for you and your company. Hopefully, you will have taken our survey above which will give you a very good idea if a CVL is for you, your shareholders and the company. If your company is unable to pay its debts and/or bills when they are due, you are in an insolvent position.
What To Expect
When entering a Creditors Voluntary Liquidation process, the company will no longer be able to trade and any assets, including order books, are sold to raise sufficient capital (hopefully!) to pay your creditors’.
Whilst there are certainly benefits to entering a CVL, there is also a downside. So, let’s consider Creditors Voluntary Liquidation advantages and disadvantages to help you and your shareholders understand the process, and have all the relevant information to hand to make an informed decision.
Advantages
- Timings – one of biggest advantages is that because, as a company, directors and shareholders have made and ratified a resolution – i.e. an agreement – to enter into a CVL, rather than having liquidation forced upon you by a creditor, you are in the position of deciding when the liquidation process starts. This allows directors and shareholders to prepare the company – i.e. to get their accounts in order and notify staff – for the liquidation, usually alongside one of our insolvency practitioners who are able to guide you in the right direction and who will handle the CVA on your behalf.
- No more legal action – a second major advantage is that as soon as your company enters the liquidation process, your creditors are no longer allowed to pursue legal action against the company.
- Writing off outstanding debts – as a director or a shareholder of the company, there is no legal obligation to repay the company’s debts. Our liquidator will handle the sale of any company assets to raise monies to pay outstanding debts (there is a legally-binding order of who gets paid first). If there are insufficient monies raised, any outstanding debts at the end of the process are written off. However, we do have to highlight the fact that if a director has personally guaranteed a company debt, they will be liable to pay that debt back.
- The liquidator handles the process and your creditors – being in a position whereby a company is unable to pay their debts is extremely stressful; we completely understand how worrying a time it can be. You literally can take a step back from the stress, knowing that our liquidator will handle not only the Creditors Voluntary Liquidation process on your behalf, but will also negotiate with your creditors.
- Redundancy claims – not only will the company’s staff (they will have been made redundant by our liquidator as part of the CVL process) be able to claim redundancy, if they are eligible, but directors may also be able to do the same. There are certain criteria to be met but our liquidator will be able to guide you and your staff accordingly. If the sale of the company’s assets does not raise sufficient monies, redundancy applications can be made to the National Insurance Fund (NIF).
- Lease/HP/loan agreements cancelled – as soon as your company enters into a liquidation process, any lease, HP or loan agreements are terminated. There will no longer be the requirement to make any further payments. The organisations that are leasing goods or provided loans become creditors of the company and are able to submit their claim to our liquidator handling your CVL.
Disadvantages
- The company must close – we’re afraid there is no other option but to close the company when you enter a Creditors Voluntary Liquidation. In addition, if you wish to start a new company, you will not be allowed to use the same name, or a similar name.
- Your conduct will be investigated – whether you have committed any wrongful trading or not, our liquidator is obliged to carry out an investigation into the conduct of all the company’s directors. This is an official part of the CVL process and we have to send our detailed report to the Department for Business, Innovation & Skills (BIS). We have to make you aware that should a case prove successful against a director, that person will face severe penalties, which could include court prosecution, a ban from being a director for up to 15 years’ or even a prison sentence.
- Shareholders lose out – because the company has been declared insolvent and all the assets sold, in most cases it is highly unlikely the shareholders will see any return on their investment. This isn’t always the situation but we do advise that generally, there are insufficient funds to distribute among shareholders.
- It’s a public process – unfortunately, a Creditors Voluntary Liquidation is not something we can keep out of the public glare. As insolvency practitioners handling CVLs, we are legally obliged to publish an advert in The Gazette about your company’s insolvency and CVL process. This means it becomes a public record and may cause some damage to a director’s reputation.
Conclusion
We hope that by explaining the Creditors Voluntary Liquidation advantages and disadvantages, you are now better informed and able to make a balanced decision regarding entering a CVL. If you need any further information, advice, clarification on the above or are ready to proceed with a CVL, contact us today.
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