Looking Into A Creditors Voluntary Liquidation?

We see liquidation as the last resort.  We understand you want to keep your company alive and trading. But if your company is insolvent and can no longer afford to trade we also know that the decision to liquidate your company can bring an end to weeks of worry, stress, and sleepless nights.

What some directors don’t realise is that liquidating a loss making company isn’t just a way of cutting your losses and closing down the business. It can also provide an opportunity to relaunch the business debt free, with the assets, employees and goodwill transferred and sold to a new phoenix company, which is debt free.

Of course you may wish simply to walk away from what you believe is an unrecoverable situation, but you may also want to get that second chance having learnt some very valuable business lessons.  Either way it is important you take proper advise and have all options, including business turnaround strategies explained.  Remember it is important to understand the pro’s and cons, and have the upsides and downsides explained before making a final decision.

Let us help you take a step back from the situation and explore all your options. Call us free on 0800 0385 140 or request a call back for expert insolvency advice.

What is Creditors Voluntary Liquidation? (CVL)

Liquidation is a legal method by which a company is closed down and its assets are sold to pay off its debts.  A creditors’ voluntary liquidation is one form of this. When people talk about liquidation, they usually mean a CVL. It’s sometimes (incorrectly) called company voluntary liquidation.

Once the directors and the shareholders of a company have decided to pursue a CVL, an insolvency practitioner will be engaged and a meeting of the company's creditors is called.  At the meeting, the creditors get the chance to approve the decision – hence the term ‘creditors’ voluntary liquidation’.

The insolvency practitioner or IP will oversee the process and ensure all the rules and regulations are adhered to.  They effectively take over the role of the directors to finalise the affairs of the company.  

Once all the assets have been sold off and the process has been completed, the company is dissolved and removed from the Companies House Register.

Is a Creditors Voluntary Liquidation right for me?

If the company has insufficient cash flow to meets it debts as they fall due, it may well be insolvent.  It is important that directors take this seriously as they are at personal risk if it is proved they traded the company “wrongfully”.  Most of the time is it obvious that a company is insolvent, but if you want a simple test e mail us for our solvency calculator or give us a call.

Sometimes it’s simply a case of knowing when to accept defeat.  For example it may be not possible to restructure the business and produce a viable enterprise, or the directors and shareholders may have just run out of steam.  There’s no point continuing with the worry and stress of a failing business if there is little chance of turning things around. A CVL allows you to close the business down and move on with your life.

However, we would always recommend a formal review to consider if a business turnaround solution like a Company Voluntary Arrangement or even an informal time to pay arrangement it a better option than liquidation.

Remember a CVL is not the end of the business.  Following an independent valuation of the assets of the business, the original owners, shareholders and directors are entitled to buy them. In fact, this often provides the best value and allows the enterprise to continue as a new limited company. This is not only legal but is often in the best interests of creditors and the wider economy. It protects jobs and gives the owners a second chance.

There are significant legal requirements in ensuring a CVL and business phoenix is successful and fully compliant with the insolvency law so again it is important to take advice.

Directors need to be aware that personal guarantees given to a bank, or a landlord, and overdrawn loan accounts will be a potential problem, again we believe in making the right business decision first and then managing by negotiation [which we do as part of our service] the fall out or problems.  If you have personal guarantees or a directors overdrawn loan account or are not sure call us or further.

On the other hand, we know a failing company is a burden and that many people seek liquidation simply because they’ve had enough. We help take the pressure off so you can investigate all your options.

What are the benefits?

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.

If a company director continues to trade with full knowledge that the business had no “reasonable prospect” they may be liable for the company’s debts. By taking control of the situation and committing to the closure of the business, you reduce the risk of accusations of “wrongful trading”, creditor investigation and personal liability.

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.

What’s more, CVL doesn’t have to be the end of your business. Get in touch for advice on how to use this technique to create a new, solvent company.

All you need to do is get in touch today so that we can take you through your options on 0800 0385 140

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