“If I decide to seek a Creditors Voluntary Liquidation what are the downsides and upsides of a Creditors Voluntary Liquidation”.

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The limited company exists in the eyes of the law independently to that of its company directors or shareholders. A limited company is considered in law to having a separate legal identity.

Although liquidation should be treated as a last resort, CVL does offer significant benefits.

The rules governing the management of a company change when it becomes insolvent. In general a director of a solvent company has to be seen to act in the interests of the company and its shareholders, however if a company becomes insolvent the duty of care changes to that of principally protecting the creditors of the company.

If a company director continues to trade with full knowledge that the business had no “reasonable prospect” the director may may be liable for the company’s debts. By trading an insolvent business the directors risk being held liable for both wrongful trading under section 171 to 175 of the Companies Act of 2006 and section 212 and section 239 on The Insolvency Act of 1986. If you have taken drawings in addition to salary, paid trade creditors at the expense of HMRC then you should take urgent advice now.

If the directors keep an insolvent business trading when it had no real prospect of “trading out” of its insolvency “The Official Receiver" or “Liquidator” eventually may accuse directors of wrongful trading or more likely creating a preference and seek financial compensation directly from the directors. Not withstanding the financial risks the directors could confront a Directors Disqualification Order regarding their conduct.

Therefore it is important to seek advice and take action. By taking control of the situation and committing to the closure of the business, you reduce the risk of accusations of “wrongful trading”, and creating preference and creditor investigation and personal liability.

Deciding on when you should struggle on and try and trade the business out of insolvency or call it a day it not always that straight forward, but it helps to take advice about your strategy from a professional turnaround consultant or insolvency practitioner to both help you clarify your thoughts and strategy and protect you at a later stage.

What’s more, a Creditors Voluntary Liquidation doesn’t have to be the end of your business. Your limited company may well be insolvent and once other options such as a “Company Voluntary Arrangement" have been considered a CVL can offer a second chance. By closing the business down legally the business assets and goodwill can be sold back to the original shareholders and directors as this often represents the best outcome for the insolvent company and its creditors and gives the owners and managers a second chance. Again it is important to ensure this sell of assets is properly managed under the supervision the insolvency practitioner with independent valuations undertaken to avoid legal challenges.

Get in touch for advice on how to use this technique to create a new, solvent company or Pheonix Company that could see you gaining that success you always wanted. Call today on 0800 902 0123 to find out more.

So the key advantages of a Creditors Voluntary Liquidation or CVL can be summarised as:

1. Legally closes down the insolvent legal entity or old company.

2. All debts die when the company is closed

3. Allows a second chance to shareholders and directors who can purchase back assets and goodwill and start into a new phonic company

4. By taking decisive action to seek a a CVL the directors are demonstrate good compliance and are at less at risk

5. Creditors’ Voluntary Liquidation is also useful if you are faced with compulsory liquidation and want to take matters into your own hands. See our winding up petitions page for more details.

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