Creditors' voluntary liquidation and a phoenix company - is this right for you?
Creditors' voluntary liquidation (CVL) was traditionally used to wind up a business, but it is increasingly used for recovery. Creditors' voluntary liquidation allows owners to rescue the value of a company and transfer that value into a new, debt-free, phoenix company.
Traditionally a creditors' voluntary liquidation was the insolvency tool of choice to wind up and shut down the company, with the assets sold to pay off debts. This is the most common form of liquidation in the UK. If you want to close your insolvent business and walk away from the company debts then creditors' voluntary liquidation is probably the best choice for you.
If your business is viable and can be restructured a creditors voluntary liquidation and phoenix is increasingly used to secure a better outcome for owners and creditors. This works by forming a new phoenix company which purchases the assets and good will from the old company as apart of the creditors' voluntary liquidation. In summary a phoenix company is a new company that is formed from any value in the failed one.
If you need hands-on business turnaround experience and believe a creditors' voluntary liquidation or phoenix company is the right choice, 4R can help.
Over the years, we've helped many clients rescue businesses, saving them from insolvency and creating wealth. In many cases, we've helped undertake creditors' voluntary liquidation and the creation of phoenix companies.
Is creditor's voluntary liquidation or a phoenix company right for you?
If your business does not have sufficient cash flow to pay its debts, or if debts exceed revenue, you are faced with a fundamental solvency test and need to answer a simple question: is the business viable?
Consider the following:
- If your business did not have the burden of historic debts, would there be any current cash flow problems?
- Are the cash flow problems linked to a one-off event, such a key customer becoming insolvent, or a temporary loss of sales?
If the answer to either of these questions is yes, then your business might be financially viable; you'll want to restructure to avoid insolvency.
If the answer is no, then it's possible that the business is not viable. If this is the case, it might be time to close the business down and find ways to avoid personal financial loss.
Depending on the situation, creditors' voluntary liquidation and phoenix company action could be the right choice and 4R can help you proceed.
Creditors' voluntary liquidation and phoenix companies - how does it work?
For companies facing financial problems, turnaround options include a creditors' voluntary liquidation and the establishment of a phoenix company.
Creditors' voluntary liquidation and phoenix companies offer transparency to creditors, potentially removes TUPE obligations, and provides employment opportunities for the old company's staff - a key goal of the 2002 Enterprise Act.
Additional benefits of creditors' voluntary liquidation and phoenix companies include:
- Creditors provide closure to bad debts, which are not recoverable
- Creditors get a future new successful customer (we specialise in maintaining supply chain relationships to preserve as much goodwill as possible)
- The avoidance of wrongful trading allegations
- Directors take control and present the situation to creditors and the insolvency practitioner (IP)
If you choose to undertake creditors' voluntary liquidation and establish a phoenix company, 4R will produce a recovery strategy and present your case to an IP.
We'll also work to secure low fees and transaction costs for the phoenix company, avoiding operational and legal pitfalls and seeking a successful outcome for stakeholders and employees.
Compulsory liquidation - an alternative to a creditors' voluntary liquidation and a phoenix company:
In this legal process, a liquidator is appointed by order of court to wind up a limited company. A creditor such as HM Revenue & Customs usually commences this.
A winding-up-petition (WUP) must not be ignored and you should immediately seek advice from 4R Business Recovery. The petition will be advertised in the London Gazette and your bank account will be frozen. To unfreeze the account, you will need to file a variation order.
A WUP will stop your company from trading and an official receiver (OR) will commence investigations to determine if liquidation is necessary. In theory, if you have done nothing wrong, compulsory liquidation can be a solution to liquidation of an insolvent company at no cost to you, but we would strongly recommend you take advise first.
At 4R, we understand that investigations can be onerous and time consuming and we believe that compulsory liquidation should be avoided. Creditors' voluntary liquidation and phoenix company action can be effective alternatives.
Members' voluntary liquidation - an alternative to a creditors' voluntary liquidation and a phoenix company:
This is the liquidation of a company that is solvent and it can take place under the following circumstances:
- A breakdown in the relationship between directors or members
- Changes in the market that result in the company no longer being a viable business
- Members wishing to remove their investment from the company and retire
Members' voluntary liquidation provides a greater degree of certainty than a striking-off. It can be a useful tool in re-structuring, as it only lasts until dissolution compared to twenty years in a striking-off.
If you choose this option instead of creditors' voluntary liquidation and phoenix company action, 4R will appoint an IP and manage the procedure.
4R - helping with creditors' voluntary liquidation and phoenix companies
At 4R, we work to help turnaround businesses. Where a company cannot be saved; we offer insolvency advice and organise solutions. Options include creditors' voluntary liquidation and the creation of a phoenix company.
Contact us for a free consultation and we'll show you how creditors' voluntary liquidation and a phoenix company can help save your business. You can also apply online now - the sooner you get help, the better your chances of getting out of debt.
For the latest financial and business news, check our news and media section. We also offer downloads, which provide additional information about creditors' voluntary liquidation and phoenix companies. Be sure to check out our free guide to business survival, creditors' voluntary liquidation and phoenix companies.