Company Director Stress 7

Voluntary Insolvency Process for Companies

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Voluntary Insolvency Process For Companies

Voluntary Insolvency – Why?

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

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.

Once you have therefore, realised your company has no chance to recover, and the only option remains to close. However, you hold the key to the timing of the closure, the process of closing, remembering not to trade while insolvent.

The choice of voluntary insolvency therefore affords you more direction. It allows you to ensure you protect your company’s creditors from incurring any additional losses, and then reduces the potential investigation you, as a director, will receive during the insolvency process.

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 is the process to describe surrendering and concluding your company is no longer viable financially.
Subject to criteria to be reviewed by you and an insolvency practitioner. If you wish to close the company, you would choose a process known as voluntary liquidation.

As we discuss insolvency, the usual option for closure  an insolvent company is 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 therefore 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 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:

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 a 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 voluntary is perceived as less aggressive than a court appointed IP;
  • You appoint your choice of IP;
  • An IP appointed voluntary 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 using Creditors Voluntary Liquidation is normally a preferred option by directors than aggressive creditors petitioning to wind their company up.

What Is a Voluntary Insolvency?

Voluntary Liquidation. An insolvency process whereby the company or person decides to cease trading, as they are unable to 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 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 formal help if your company is viable?  HBG Advisory can act without formal insolvency instruction, helping directors turn their company around, avoiding closure.


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