A Creditors’ Voluntary Liquidation is a process that allows company directors to close an insolvent company voluntarily formally.
Directors often choose it as a means of taking control of creditor pressure and the pending threat of a winding-up petition.
An HBG Advisory licensed insolvency practitioner can act as Liquidator of a company to help directors convene a shareholders meeting along with the procedure for liquidation.
An advantage of a CVL is that directors can nominate their Liquidator, unlike in a Compulsory Liquidation. Once appointed, the Liquidator deals with realising any company assets and paying distributions to creditors of the company liquidated.
Company directors taking advice early
Company directors must take advice early, as they need to understand their responsibilities. Directors of an insolvent company have a duty to minimise the loss of creditors. Failure to do so could lead to possible personal liabilities for company directors further on.
What is a Voluntary Liquidation?
Voluntary liquidation means the decision to close a limited company, usually with the threat of insolvency.
When the vote reaches the decision, the company is then wound up and dissolved.
The term voluntary liquidation means this decision was made without external pressure and decided by the company and its board of directors and not forced by the court.
Voluntary liquidation is also applicable to solvent companies that wish to close their business too formally.
Members Voluntary Liquidation is the suitable method of liquidating the assets of a solvent company before dissolving and striking it off the register at Companies House.
Directors of the company retain more control, appointing their preferred Insolvency Practitioner;
Stops pressure from creditors, HMRC & bank;
Lowered risk of wrongful trading;
Directors may purchase back the liquidated companies assets.
Investigation into the former conduct of the directors. Potential risk
Crystallises personal guarantees;
Publicly advertised in the London Gazette;
Shareholders often lose out.
Timeline of Creditors Voluntary Liquidation?
Placing a limited company registered in England and Wales into a CVL is a quick process, usually taking only ten days!
The liquidation process, which follows, in which the insolvency practitioner realises the company’s assets, takes considerably longer. The time frames depend on the:
Size of the limited company;
Entanglement of assets of the company, such as property and heavy machinery.
Can Directors be held personally accountable and therefore liable?
Once an insolvency practitioner assumes office as liquidator, then company directors of that liquidated company must be aware that the liquidator will examine their conduct up to their appointment date. As part of their duty, the IP requires them to investigate any wrongful or fraudulent activity, especially if it impacts on creditors of the company.
If the liquidator finds evidence of directorial misconduct via wrongful or fraudulent training, one of the penalties include directors becoming liable for company debts.
Company directors may face a ban of 15 years from holding the office of a director.
The cost to liquidate a company?
For many directors, fear around the costs of voluntary liquidation often stops the process from commencing. This is highly risky, as your company may be forced into compulsory liquidation out of your control.
The costs for a CVL are typically recouped from asset realisation within the company during the liquidation process, negating directors’ payment.
Failing which, directors who qualify for directors’ redundancy may use that to fund a liquidation when asset realisation is nil or insufficient.
Is it possible to reverse a Creditors Voluntary Liquidation?
Choosing to use a voluntary liquidation is prompted often by a possible disgruntled creditor threatening to wind your company up. Therefore, you must steer clear of compulsory liquidation and wish to appoint your insolvency practitioner.
Should your company return to solvency and obtain its ability to pay creditors, it is possible to halt the liquidation process, provided it remains on the registrar. Then you have struck the company off, the registrar at the company’s house. However, the process of reinstating it is known as administrative restoration.