CVL Advantages & Disadvantages

CVL advantages & disadvantages. Author: John A Waller. Consultant. Reviewed June 20th, 2024.

Creditors’ Voluntary Liquidation occurs when shareholders and directors agree to liquidate the company used to operate their business. as its cash flow no longer enables the payment of creditors. A CVL is the most common type of liquidation in England and Wales.

Company Directors Remain Aware of What to Expect

A Creditors’ Voluntary Liquidation is a statutory process, so each step is pre-defined. Therefore, as a company director, you are more aware of the liquidation process when dealing with the team at HBG Advisory than the official receiver.

CVL Advantages and Disadvantages

When a company enters CVL, it benefits you, your company and its creditors, however, while stopping action against the directors of an insolvent company. Immediately. For further reading, please view ‘What is creditors voluntary liquidation‘.

  1.  Stops immediate creditor action;
  2.  Avoid CCJ or Winding Up Order; The appointed liquidator has a duty to examine the reason for the failure of the business. Additionally, they are therefore required to examine the former conduct of the company’s directors until their appointment;
  3.  Once appointed, our Liquidator deals with all creditors. Directors no longer have to deal with companies’ creditors unless a personal guarantee exists. The Liquidator and their team then conduct future communications;
  4.  Staff will then claim lost pay and redundancy payments where applicable;
  5.  Claim redundancy as a Director, average £9k of successful claims;
  6.  Eliminate stress: Perhaps the principal benefit of liquidation is that it’s a decisive conclusion for the company. Liquidation, therefore, draws a line, allowing former directors to move on with a new business;
  7. To action a liquidation, the cost is low compared to other options (cost to liquidate);
  8.  Plan your future; Act Now! Don’t use your funds to prop up the business. (especially using credit cards) If, however, you believe you are digging a hole, then stop. It will only, therefore, get deeper.

What do we do for you?

  •  Assess your current situation regarding cash flow and debts;
  •  Advise if there is then a possibility to rescue the business.

CVL Advantages and Disadvantages – Advantages of a CVL

Liquidation benefits – Could some assets be sold?

  •  Would a Company’s Voluntary Arrangement seek protection from creditors and, therefore, continue trading? Please read Limited Liability meaning for further detailed assistance;
  •  Assess your position regarding any personal guarantees, director’s loan accounts, directors redundancy pay;
  • Appoint a licensed insolvency practitioner if a Creditor’s Voluntary Liquidation (CVL) is the best solution. They then take over all dealings with creditors and staff.
  • The sooner the decision begins the process, the less risk of fraudulent trading.

Business Liquidated in just four weeks. Leaving you free to plan a new future, therefore. You may also buy back the business’s assets and start trading again.

Control over the Timing of Voluntary Liquidation

The decision to initiate a Creditors’ Voluntary Liquidation requires the board to pass a resolution, which is then ratified by a shareholders’ resolution in favour. Therefore, as a director, you have control over the timing of the liquidation. Supervision over the timing allows time to prepare for liquidation. 

A CVL provides a clear advantage compared to compulsory liquidation. The company’s creditors force it to liquidate, and the directors have no control over the timing.

Employees Can Claim Redundancy Sooner

For employees, the ability to claim redundancy payments sooner can bring much-needed relief. As a business owner, paying employees their wage entitlements when the company is insolvent can be overwhelming, especially if you cannot make the payments. Understandably, employees who depend on their wages would be anxious and seeking a resolution. The option of a CVL can provide a way out of this situation, relieving the pressure and uncertainty.

A CVL (Creditors’ Voluntary Liquidation) allows you to avoid the situation. Once the CVL process has begun, eligible staff can qualify for statutory redundancy payments from the government’s Redundancy Payments Service.

Directors May Be Eligible for Redundancy

While employees may claim through the Redundancy Payments Service, it’s important to note that company directors, due to their unique position, also have the potential to claim redundancy.

To do so, directors must prove they have –

  • As an active staff member for two years or more before the liquidation,
  • directors could be eligible for redundancy entitlements based on hours worked and length of service. 

CVL Advantages and Disadvantages-Disadvantages of a CVL

Liquidation of a limited company ends the company and is removed from the registrar at the company’s house. d 

CVL Advantages and Disadvantages

CVL Advantages and Disadvantages – Allegations of wrongful trading

Once the insolvency practitioner is appointed, one of the essential roles they carry out is investigating the former conduct of those who remained directors. The liquidator must, however, forward a report to the Department for Business, Innovation & Skills (BIS), which is confidential and not for the eyes of anyone but them. 

However, the report may prompt BIS action against the directors, leading to penalties, a director ban of up to fifteen years, and even a custodial sentence.

Personal liability for debts of the company. 

Directors’ liability for debts is usually protected (Limited Liability) because the limited company is a separate legal entity to a director.

However, directors may be liable if they fail to observe the director’s duties and responsibilities and 

  • They guaranteed the creditor personally if the company defaults;
  • Traded while insolvent;
  • Involved in misfeasance;
  • Any other form of improper actions, including
    • Wrongful trading;
    • Fraud.

CVL Advantages & Disadvantages – Overdrawn directors’ current accounts liability

When the company liquidates, directors repay the overdrawn director’s loan accounts. Liquidators remain empowered to request and enforce directors’ repayment of any monies owed to the company in liquidation.

Perhaps the realisation of an overdrawn director loan account answers why directors delay taking insolvency advice.

The liquidator will sell all business assets.

The appointed liquidator of your company will then realise the value of the company’s assets to raise money and, if available, pay a dividend to creditors. 

All employees will be made redundant.

Once a limited company is liquidated, all employees and directors remain redundant. However, redundancy is calculated by the length of service, and they must be paid through the PAYE scheme to claim. Statutory redundancy. 

How long does it take for a limited company to liquidate?

A Creditors’ Voluntary Liquidation is when the company’s directors decide to end the business willingly (voluntarily). A CVL is used when the company is insolvent.

However, it is crucial to understand that this insolvency process closes the business using a limited company’s vehicle.

A CVL is a quick and efficient way to close the shop and end the worries caused by the company’s mounting debt.

CVL Advantages & Disadvantages – How Long Does Liquidation Take?

Each case is different, so the time to complete is difficult to call. However:

  1. To appoint a liquidator can be done in 7 days;
  2. The CVL for the company may take 14 days;
  3. Complete the liquidation, 
    1. realising company assets and 
    2. the proceeds distributed to creditors.
  4. Typically, liquidating a company from start to finish takes between 6 and 24 months.

CVL Advantages and Disadvantages – Liquidation Process

The process is deadline-oriented. The day after the shareholder meeting, the company’s directors have seven days to notify creditors and request their vote on the adopted resolutions.

The date of the decision or meeting on these resolutions should be no earlier than three days after the notification and no later than 14 days after the shareholder meeting.

Creditors can vote on the proposals using several decision-making methods, such as correspondence, electronic voting, or virtual meetings using video conferencing.

CVL Advantages and Disadvantages – What happens to shareholders in liquidation?

Shareholders of an insolvent company are last to be paid. Although it is unusual for them to receive money, it is possible.

CVL Advantages and Disadvantages – What are the benefits to creditors?

  • allows you to focus on other matters while the liquidator deals with the insolvent company and the money owed;
  • Engage with the liquidation appointment;
  • allows the liquidator to investigate the directors’ conduct;
  • VAT is reclaimable.

Do not fall into the trap of many business owners, holding back from contacting a licensed insolvency practitioner. The team at HBG Advisory engages directly with you and prioritises business recovery. So please speak to us sooner rather than later; you reduce the available options if you leave it late.

PLEASE ACT TODAY FOR FREE CONFIDENTIAL ADVICE REGARDING A VOLUNTARY LIQUIDATION.

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