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Voluntary Insolvency Process For Companies

Voluntary insolvency is when shareholders of a limited company decide to liquidate their company. If there are enough assets to pay all the debts, the company is solvent, failing, which is insolvent.

For a voluntary liquidation to take place require a licensed insolvency practitioner in the UK

So when considering voluntary insolvency!

Then why?

  • Being a director with a company in financial difficulty – stressful;
  • You may think you have lost control, though you are still responsible for its care.

So once you have realised your company cannot recover, closing remains the only option. However, you hold the key to the timing of the closure, the process of closing, and remembering not to trade while insolvent.

The choice of voluntary insolvency, therefore, affords you more direction. It protects creditors and reduces the investigation you, as a director, will receive during insolvency.

Compulsory Liquidation

When directors ignore insolvency through ignorance or attitude, they risk compulsory liquidation. This is brought upon by a creditor who has had enough and will proceed through the courts to issue a winding-up order and eventual compulsory liquidation.

Voluntary Insolvency – WHAT IS IT?

The Voluntary Insolvency term remains the process of admitting your company is no longer financially viable.
Subject to criteria to be reviewed by you and an insolvency practitioner. If you wish to close the company, you will choose a process known as voluntary liquidation.

Insolvent companies usually close through a creditors voluntary liquidation. For further reading, please view ‘What is a Creditors Voluntary Liquidation’.

When assessing the financial viability of a company, we adopt two tests for solvency:

  • A cash-flow test. – Your company cannot pay its creditors as and when they fall due.
  • A balance sheet test. – When your company has more debt than it owns.

If one or both reflect your company, it is safe to say your company is probably insolvent. At this point, however, as a director, you are, by law, compelled to protect the financial interests of your company creditors, not the shareholder.

Now is the time to seek the help of an experienced Licensed Insolvency Practitioner and review all options to protect you and all your company’s creditors. For further help choosing a licensed IP and their duties, please view the following:

If, upon review, your company is viable and possibly saved. Further, options exist through a rescue process.
They are:

What Types of Insolvency are available?

If your business remains viable? Then consider and could be saved by a company rescue procedure, like administration or company voluntary arrangement (CVA).

Alternatively, it might be in the best interests of everyone involved if the company enters into a voluntary liquidation known as a  creditors’ voluntary liquidation (CVL).

Advantages of Voluntary Insolvency

  • An IP appointed voluntarily is perceived as less aggressive than a court-appointed IP;
  • You appoint your choice of IP;
  • An IP appointed voluntarily is perceived as less aggressive than a court-appointed IP;
  • Avoids a court case, therefore with company creditors;
  • You demonstrate to your creditors your action to protect their position rather than force them to act;
  • Quick process to then resolve pressure from creditors.

Disadvantages of Voluntary Insolvency

  • The company’s trading life ends with all marketing and brands.
  • A voluntary liquidation is public, and wrongful trading charges may be brought against the former directors if they delay taking action to protect company creditors.

Voluntary liquidation is normally preferred by directors over aggressive creditors petitioning for a winding-up order.

What Is a Voluntary Insolvency?

Voluntary Liquidation of a company. An insolvency process whereby the company or person decides to cease trading, as they cannot pay debts and therefore require help.

So they VOLUNTARY request to LIQUIDATE their position before it is forced on them by a creditor.

What are the implications of insolvency?

The implication of voluntary insolvency depends on the type of process used.

Choosing a rescue process, like a Company Voluntary Arrangement, allows a company to return to viability.

Opting to liquidate ensures the company is removed from the registrar at the company house and ceased.

Presuming the former directors are not subject to any misconduct claims, then the directors can be appointed to further companies.

Other Solutions to Insolvency

Directors can source other ways to resolve their company issues before considering formal insolvency. The company’s creditors may prefer this option formally. We may assist in your negotiations with creditors while keeping an eye on costs. Ask a member of our team on the number below for further assistance.

Rather than approaching a licensed insolvency practitioner who acts for creditors, why not ask for less legal help if your company is viable? HBG Advisory can work without formal insolvency instruction, helping directors turn their company around and avoiding closure.

Meet THE TEAM AT HBG ADVISORY

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