Creditors Voluntary Liquidation (CVL)
CVL is the most common type of insolvency, as you can liquidate your limited company (also called ‘winding up’), whereby the company will cease trading and employing people. Through the liquidation, the assets are used to pay off its debts with any remaining funds (if any) going to its shareholders. Eventually the company will not exist once it’s been ‘struck off’ from the companies register at Companies House.
You can propose a company stops trading and be liquidated if the company can no longer pay its debts and it’s subsequently insolvent
Where do I start?
In order to guide you with the process you should obtain the advice of an insolvency practitioner as soon as reasonably practical, who will assist you with the initial steps. These include calling a meeting of shareholders in which 75% of the shareholders (by value of shares) must agree to pass a ‘winding up’ resolution.
Other resolutions include members and creditors appointing an authorised insolvency practitioner (IP) as liquidator, who subsequently writes to your creditors both beforehand and to inform them that you have passed the winding up resolution.
Further actions include sending the resolution to Companies House within 15 days and advertising it in The Gazette within 14 days.
ADVANTAGES
- It’s a quick and efficient way to bring the company to a close
- The timing of the process is dictated via the resolution of the board, the timing of this the directors can decide
- The liquidator communicates with the creditors meaning you don’t have to
- It ends the pressure you may have been facing from banks and other creditors
- The quicker the decision is made, it reduces the risk of wrongful trading
- You have the opportunity to start a new company and buy back the assets subject to relevant notices and reporting
Disadvantages
- The company stops trading immediately and effectively closes.
- Any goodwill from the business may be lost, unless prescribed procedures have been followed to acquire the name
- Personal guarantees may become payable
- Director conduct is investigated and reported on, with potential action being taken
- You may have to contribute to the costs of the process, if there is insufficient value in the assets.
- Due to it being insolvent it is unlikely (but not always) there will be a return to shareholders.
What does the Liquidator do?
On appointment the IP takes control of your business and will deal with the following:
- Sell company assets, using the money to pay creditors
- Keep creditors informed of the process and involve them in decisions where deemed necessary
- Interview directors and report accordingly if required
- Resolve outstanding contracts or legal disputes
- Keep relevant authorities involved e.g. HMRC
- Apply for the company to be removed from the companies register
What are the effects on the directors?
Following the liquidator being appointed, directors no longer have control of the company or its assets, and therefore you cannot act on behalf of the company.
However...you must...
Give the liquidator the company assets, paperwork and records
Be interviewed by the liquidator, if requested
Provide any liquidator with information regarding the company, if requested to do so.
Failure to do the above can lead to you being banned as a director for 2 to 15 years by the Insolvency Service, if they so direct.
re-use of company name
Directors can be banned for up to 5 years from forming, managing or promoting any business with a similar company name as the liquidated company, this includes both registered and trading names.
There are however exceptions to this;
- The business is sold by the IP providing the required legal notice
- The court have given permission
- You’ve been involved with the other company that’s been using the similar/same name for over a year prior to liquidation.
costs of Liquidation
The costs of the liquidation are usually paid from the assets of the company. However if there are no assets within the company the liquidator may ask for payment from the directors or shareholders which may include providing a personal guarantee.
Costs in the liquidation are very dependent on the complexity and scale of the company i.e. number of employees, sale of assets etc.
In the liquidator’s initial report to creditors they must provide a fee estimate for the work which has to be subsequently approved from creditors.