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What is a Creditors’ Voluntary Liquidation (CVL)?
A CVL is instigated by the company when the Directors become aware that the company cannot pay its debts when they fall due, rendering it insolvent. It is important at this point that the company ceases to trade, this is so the assets are protected and the debts do not continue to increase. The Directors’ then appoint a Liquidator who must be a licenced Insolvency Practitioner. Once they do this the Directors’ powers cease and the liquidator takes control of the company. The assets are then sold and the proceeds are distributed to the company’s creditors. The Insolvency Practitioner ensures that the creditors’ best interests are considered. At the end of the Liquidation, the company is dissolved.
Why should you take action immediately?
It is imperative that the Directors’ identify Insolvency at the earlier possible date as continuing to trade whilst insolvent has dire consequences especially if the company debt increases. It can, for example, cause Directors to become personally liable, at a later date, for claims brought against them by an administrator or liquidator. The other aspect to consider is how far along the process the creditors are as they could force the company into liquidation and an alternative Liquidator appointed.
What is the process for entering into a CVL?
The process is managed by an licenced Insolvency Practitioner who, with the assistance of the Directors’, invoke an orderly wind down of the company.
The shareholders of the company must pass a resolution where 75% of the shareholders, by value of shares, agree to liquidate the company. A Creditors meeting is then held within 14 days of the passing of the resolution. They creditors’ must be informed of the meeting at least 5 days before it happens. The date and time of the meeting is also advertised in ‘The Gazette’. At the meeting, the company’s creditors’ can suggest an alternative liquidator than the one put forward by the company. A statement of affairs must also be presented at this meeting where the creditors can question the Directors’ about the failure of the business.
Once the company has entered Liquidation, the Insolvency Practitioner will deal with all creditor claims and take control of the company and its assets. The assets are sold and the proceeds are distributed amongst the company’s creditors.
Once a company has entered into a CVL the Liquidator has to submit a report on the conduct of the Directors to the Department of Business, Innovation and Skills (BIS) within six months.
- Relatively quick way of closing down your business
- Outstanding debts are written off
- Legal action is halted
- Employees can claim redundancy pay
- Relatively low costs involved
- Avoid court processes
- The company will cease to trade
- Asset values will decrease
- Any personal guarantees will be called in
We will ensure that the liquidation of your business is as straightforward as possible, do not hesitate in contacting us today for free advice.
How does Liquidation effect Directors?
When a Director opens a Limited company it is ‘Limited liability’ which means that the debt is that of the company not the Director. When the company liquidates, the debt is dealt with by the liquidator and remains within the liquidation. This then enables the Director to either continue on in the same line of business or to make a new start doing something totally different.
As it is the company that is liquidated and not the Director, the personal credit history of the Director is not effected. This may change if there are unpaid personal guarantees following the liquidation.
Can I open a new business?
The Director is then free to set up a new company which could purchase the assets of the old company from the liquidator. This usually occurs as the new company will need the tools or clients of the old company and could provide the best value to the liquidator.
The main restriction of the Director of the new company is that the new name cannot be the same or something that sounds similar to the old company. This is to prevent suppliers and customers believing that they are still dealing with the old company.
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What should I do if insolvency appears likely?
Do not bury your head in the sand! If you are a company director, you should certainly not just resign (which could be a breach of your duty as a company director) and do not just continue to trade (which could lead to personal liability). Take advice as soon as possible and act on that advice and, in particular, do not transfer assets without first obtaining advice.
What are the consequences of being a director of a company which has been put into administration or liquidated?
You could be made personally liable for your company's debts and could face criminal prosecution, a fine, and/or disqualification as a director. If you have personally guaranteed the company's debts you will be required to honour those guarantees. For the next five years you are not allowed to be a director of another company with a similar name without the court's permission.
Will I be disqualified as a director?
In reality this seems unlikely as less than 10% of directors of insolvent companies are disqualified. But disqualification proceedings may be brought if warranted by the directors conduct, but even in those cases the Insolvency Service would usually seek to obtain an undertaking from the director which has the same effect as a disqualification order. The minimum period of disqualification is 2 years and the maximum 15 years and prevents an individual from being a director of a company or being concerned in or taking part in the promotion, formation or management of a company.
Will I have to face the company’s creditors?
If there is an insolvent liquidation, then a meeting of creditors must be convened. In a creditor’s voluntary liquidation, a director is required by statute to attend and chair the Meeting of Creditors, however in a Court liquidation this is at the discretion of the interim Liquidator.
Our aim here at JT Maxwell is to help change the perception of our industry. And the reason for this is simple: we passionately believe that the service which we provide is incredibly valuable, not just for businesses, but also in a personal context.
JT Maxwell Limited, Unit 1 Lagan House, 1 Sackville Street, Lisburn, BT27 4AB.
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