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What is a Creditors Voluntary Liquidation?

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Updated: February 27th, 2021

What Is A Creditor Voluntary Liquidation?

What is a ‘Creditors Voluntary Liquidation’? A Creditors Voluntary Liquidation procedure closes an ‘Insolvent company’ down for good voluntarily. It is a legal insolvency procedure involving directors of an insolvent company who have voluntarily chosen to guide their company to an end, by winding the company up.

The records show, A Creditors’ Voluntary Liquidation (CVL) is the most common form of liquidation directors use in England and Wales while closing the business down legally.

Adopting Creditors Voluntary Liquidations affords company directors the opportunity to deal with aggressive creditor action while avoiding compulsory liquidation.

Directors of the company maintain the opportunity to appoint their preferred liquidator.

HBG Advisory has licensed insolvency practitioners regulated with the Insolvency Practitioners Association available to act to prevent further damage to the company, while importantly protecting its creditors.

Most importantly, directors MUST not delay in acting, as this may impact the potential for personal liability of the directors if ignored.

An example of the most common mistake we encounter; directors paying staff their final wages out of their own pocket. If there is not enough capital in the company, unpaid wages and redundancy payments are paid for by the Government. HBG Advisory will advise and assist any employees that require assistance with this process.

Before agreeing to a liquidation, better options may be available. So, before you consider closing down your company, please contact HBG Advisory to further expand on your available opportunity. Ask for a Pre Liquidation & Review Planning meeting. For a robust professional assessment of your company’s position, please call 0800 612 5448.

A licensed insolvency practitioner acts as the liquidator of a company to assist directors prior to appointing with all matters required to commence the liquidation.To view our team of insolvency practitioners, please view ‘The Team at HBG Advisory‘.

For further help and assistance, please read ‘ What is Limited Liability.

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If you need help understanding the best way forward for your company, we can provide confidential free initial advice. You can book a free virtual meeting or call us on 0800 612 5448.

Voluntary Liquidation Creditors

Often people refer to this form of insolvency as a Voluntary Liquidation Creditors. They are, though, both the same
process of insolvency.

To activate a voluntary liquidation, the board requires the approval of the companies shareholders first.

Read further on’Voluntary Liquidation Benefits‘.

As a voluntary liquidation terminates forever, the actual legal entity, the board needs to understand, the company no longer required for trading purposes of any kind and assets will be sold and all creditors settled in full. The action is purely voluntary and not compulsory by creditors using the courts to act.

When debtor acknowledges their companies position and it may longer trade due to adverse cashflow. They then request help sort the problem out with no intervention from a creditor. They act voluntarily.

The idea of using voluntary liquidation is to finish a company’s operations, deal with its financial affairs, and break up its corporate structure while paying creditors.

So, voluntary liquidation is then not ordered by the courts, though requires the approval of the companies shareholders along with the board of directors.

If carried out correctly, and at the earliest warning signs. Directors remain therefore not required to pay the fees to liquidate the limited company.

HBG Advisory always strives to ensure a company liquidation self-funding.

A common misconception is if the court is liquidating a company, or voluntarily liquidated, a director remains required  to pay fees of the liquidation personally.

If acted upon early, the insolvency procedure may be funded by the realisation of company assets.

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Creditors Voluntary Liquidation? – Definition.

A CVL is a formal company closure insolvency process in which company directors then instruct a licensed insolvency practitioner to ensure their insolvent limited company is then voluntarily closed officially.

Before agreeing to arrange a Liquidation, explore the financial position of the company and finance options available. Perhaps a company voluntary arrangement can help the company to trade? If not, then an administrator can allow the sale of the business, enabling better returns for creditors and jobs saved. Even considered a pre-pack administration were the directors then consider buying the assets of the company while saving jobs.

Remember, a CVL is the closure of the business then for good (assets are liquidated) and therefore then has a substantial impact financially on shareholders and creditors unless they have some form of security. Further, providing directors have conducted themselves legally, then they are, therefore, not personally liable for company debt. (Providing no personal sureties given). The risk of wrongful trading must not be taken lightly.

Company directors have no capacity in UK law to carry out closure themselves when insolvent. Liquidation advice should be from a Licensed Insolvency Practitioner.

Considering a Creditor’s Voluntary Liquidation

If your business (Limited Company) is insolvent, you, as a director of your business, have a duty to ensure you protect the interest of your company creditors by seeking insolvency advice. Further, as a director, you are required to review your companies position and consider ways other than a liquidation to ensure your companies viability and its creditor’s position.

A Creditor Voluntary Liquidation may be considered the wrong action to take for creditors and the company. Therefore, advice from a licensed insolvency practitioner is essential.

Reviewing your business often highlights other opportunities avoiding the CVL approach:

  • Carry our an informal workout
  • Consider company restructure and restart business utilising a: 
    • Company Voluntary Arrangement (CVA) 
    • Administration 
    • Pre-pack administration 
    • Proposing management buy out or
    • Creditors Voluntary Liquidation and staring a new company as a phoenix of the former company.
  • Appointing an Administrative Receiver.

 

Please do not assume all is lost and only consider under pressure a voluntary creditors’ liquidation. Ponder what position your company is in and ways forward. Only then, if you believe your company is insolvent and no longer viable, should you commence your company’s liquidation. HBG Advisory will explore avenues available to your business; therefore, please arrange initial FREE insolvency advice. Other options remain open.- identify opportunities other than a liquidation of the company – and agree on a plan for the way forward.

If you would like a CONFIDENTIAL FREE meeting to explore further your company’s issues and the options available, please contact John Waller on 0800 612 5448 or email [email protected].

How can a CVL assist?

Insolvency for limited companies in the UK offers various formal insolvency procedures to either protect or close companies.

The process used to protect companies by turning around their situation includes administration and CVAs. Those companies requiring closure use liquidation as the business is no longer viable (Insolvent). (Liquidations) allows the former directors to start afresh and draw a line for the creditors, allowing a possible payment should realisation of the companies assets allow.

A CVL process closes a limited company while dealing with creditors who remain unpaid in whatever capacity. The appointed liquidator will ensure all the companies assets are realised to enable maximum payout to the creditors. However, often shortfalls occur causing these debts to be written off. However, if directors have signed personal guarantees then they shall be held responsible for payment.

A CVL is used for the closure of an insolvency limited company. However, a Members’ Voluntary Liquidation (MVL), though voluntary, requires the company to be solvent and is used for purposes other than the inability to pay creditors.

 

What’s the Job of a Liquidator in a Creditor’s Voluntary Liquidation?

To be appointed as a liquidator in the UK. The law requires the person, appointed as a liquidator, to be a licensed insolvency practitioner, regulated by a professional body. Once appointed, the Insolvency Practitioner has a duty of care to’act in good faith’ at all times while in office, and work to maximise the return for company creditors, so they may therefore receive repayment.

The liquidator’s primary role is to focus on realising the assets of the company, so they then may distribute the proceeds to the company creditors.

The licensed Insolvency Practitioner has powers to investigate the conduct of any director of the company before their appointment and if the evidence is found of wrongful trading then commence prosecution and refer matters to The Insolvency Service. ALL liquidators are charged with such duties and if they fail to carry out such matters then they themselves face investigation.

Impact of Coronavirus Covid19

The ever-changing impact of the corona19 virus pandemic hit industry and commerce hard in the UK. Many are facing financial ruin or mounting financial distress. While happening, can creditors take action by using the courts to collect money while under lockdown?

UK’s government faces challenging times. They are introducing new rules to mitigate the severe financial crisis; UK businesses endure. HMGOV hopes the response then helps companies, so they then continue trading while restructuring, and rescue plans implemented. Therefore, saving jobs and refloating the UK economy.

For further reading, please check out ‘Bounce Back Loans and Liquidation‘.

Government’s new measures to help businesses protect against creditor claims.

Proposals for rule changes await parliament. So they include:

  • Supplies require protection
  • Moratorium protection.
  • Introduction of a restructuring plan

Protection from creditor pressure.

Selling to a connected party

Former directors of a failed company are legally permitted to consider buying back their former business and assets in a creditors’ voluntary liquidation. HBG Advisory  will provide you with advice and assistance on this process.

Why Choose A CVL?

The reasons and causes vary. At the free initial consultation, you need to explore why the company faces closure. It may be extreme pressure from the HMRC for tax arrears, which remain overdue, third party legal action by trade suppliers, or the business has sustained a significant bad debt, therefore, seriously affecting cash flow?

Issues can cause companies to cease trading. When cash dries up, the company, therefore, then fails to pay its creditors. Directors must then concede the company may be insolvent, as unable to discharge its debts, as and when they fall due, or if the business liabilities exceed its assets.

You may then choose a CVL for your company because:

  • Your business is insolvent on a balance sheet test;
  • It has tax bills; it may then not repay;
  • The court proceeding may be pending;
    • The company may have received a winding up petition?
  • HMRC Time to pay arrangements failed or arrears;
  • Unable to afford the time to pay;
  • Build up of debt enforcement notices;
  • joint VAT and PAYE arrears;
  • HMRC enforcement causes business to cease trading;
  • Debts owed by the company exceed assets and available future cash flow;
  • Substantial rent arrears. Landlord threatening re-entry;
  • Build up of County Court judgements;
  • Substantial insurance arrears;
  • Business debt may then be no longer manageable;
  • Council tax arrears;
  • The industry has changed;
  • Not able to afford to pay creditors.

Often, company directors, therefore, themselves fall into financial difficulties. The cause may be directly related to a poor performing company.

It may have:

  • Absorbed all personal monies of the owner-managed limited company;
  • Court action pending, with not being able to pay your tax bill;
  • May you have used company cash to pay income tax arrears;
  • Debt advice pay has meant you have entered an individual voluntary arrangement;
  • You may be facing bankruptcy proceedings, not able to trade on and company insolvent?

Thinking Of A CVL – Closure Options?

Initial Planning

Insolvency Planning & Review

Company directors should not rush into placing your limited company into liquidation. You should consider a pre liquidation strategy meeting. A pre liquidation meeting is essential so you may understand and agree on the outcome. A professional review creates value

The report should then be an important fact find:

  • You should ensure you compile an enquiry pack;
  • Review the company’s last five years of accounts filed;
  • Carry out a simple audit of the charges registered over the assets of the company;
  • Examine previous forecasts prepared on “what if” bases;
  • Review of the company’s customers and its position in its market;
  • Highlight the company’s critical processes adopted and improvements needed;
  • Appraise director’s retirement strategy;
  • Balance directors loan accounts;
  • Ensure all options available.

The evaluation may highlight a different strategy than a CVL.

If the pre liquidation planning review letter recommends a CVL and sets up a phoenix company, then that letter might go on to ask:

  • How to finance the turnaround?;
  • Can you use the company name in the phoenix company;
  • When to call the section 100 meeting of creditors, for a CVL.

Advantages And Disadvantages Of A CVL

Advantages

  • Fast process normally;
  • Employees may claim their unpaid wages and redundancy pay quicker from the government;
  • Company directors hold more control than a compulsory liquidation;
  • Creditor pressure removed immediately;
  • Risk of wrongful trading potentially reduced;
  • Opportunity to buy back company assets;
  • You may become a director of a new co;
  • As a long term director, you may claim redundancy (if on the payroll).

Disadvantages

  • Every liquidation requires investigation into how the directors conducted themselves (SIP 2);
  • Directors give personal guarantees;
  • The Liquidation advertised in London Gazette;
  • Shareholders are not likely to receive any returns on investment;
  • Employees may claim their unpaid wages and redundancy pay quicker from the government. (Redundancy Payments Office)

Can I Liquidate My Limited Company?

No. For an insolvent company closure, a licensed insolvency practitioner takes the appointment.

When Is A “CVL” Appropriate?

A CVL is appropriate when a company is proven to be insolvent. The company can either no longer pay its debts as and when they fall due, or when its liabilities amount to more than the assets on the balance sheet.

How Long Is The Procedure For A CVL?

Placing a company into a CVL is usually a quick process and maybe actioned within ten working days.

The process requires the appointed insolvency practitioner to realise the assets of the company, though this can be lengthy and is dependent on the type of asset, the type of business and its size and spread.

How much is a CVL?

As with everything in life. How long is a piece of string?

Therefore, the cost depends on many determinants:-

  • The size of the company;
  • Value of company assets;
  • How many creditors;
  • Size of the workforce;
  • Number of locations;
  • Hazard issues;
  • Is the limited Company solvent or insolvent?

As you can see, many factors affect the cost, the most important though is its solvency. This then affects the type of insolvency, as that determines the type of voluntary liquidation procedure it must go through.

It may be a:-

  • Members Voluntary Liquidation. – Solvent
  • Creditors Voluntary Liquidation. – Insolvent

To carry out a basic Members Voluntary Liquidation can cost from £850 plus vat

For simple Creditors, Voluntary Liquidations cost start at £3,000 plus vat

All types of liquidations are subject to the points above and do not include disbursement costs. Which are extra.

For further reading view ‘how much to liquidate

Choice of Liquidator

Should the creditors’ choice of liquidator be different from the shareholders, the creditors’ choice prevails.
Impact on Shareholders

For further reading on how a liquidation for an insolvent company impacts on shareholders. Please view ‘What happens to shareholders in liquidation’

Commencing A CVL

Stages of a Creditors’ Voluntary Liquidation?

  1. Arrange a board of directors’ meeting or sole director and discuss and agree on a statement of affairs.
  2. Call a shareholders meeting.
  3. The creditors’ meeting.
  4. The company now in Liquidation.
  5. Terminating the Liquidation.

This process commences by the directors of the company requiring liquidation. They have a meeting of shareholders and confirm the company is insolvent and has no plan to move forward. The company then ceases to trade under the instructions of the directors.

The shareholders agree to appoint a licensed insolvency practitioner to arrange a meeting of creditors giving fourteen days notice minimum. This then allows formal insolvency procedures to commence. The company then needs to arrange to stop trade of any kind.

    • Then, the available creditors vote to appoint a liquidator.
    • The Liquidator will change the registered office to his.

Recent changes allow virtual meetings. A formal actual group meeting should go ahead if:

  • Creditors require ten per cent in value of the companies creditors, to vote for one;
  • Ten creditors individual vote for one;
  • The creditors require ten per cent of the number of creditors. If any of the above apply, then before the pandemic, a meeting is possible for creditors to attend. During the current pandemic, no physical meetings allowed.

Do I Need To Attend Any Meetings?

The directors hold a board meeting, to consider recommending liquidation, to the company’s shareholders.

Then follows, an extraordinary general meeting of the shareholders so members may pass resolutions, and therefore place the company into liquidation. Also, at the meeting, they vote to nominate a liquidator.

As of April 6th 2017, it is no longer an automatic requirement of the Insolvency Act 1986 (as amended) to hold a physical meeting of creditors.  Depending upon the circumstances of the Liquidation, the member’s appointed Liquidator, may be ratified as the creditors’ Liquidator by Deemed Consent order or by holding a virtual meeting.

A physical meeting of creditors occurs if requested explicitly by either creditor representing ten per cent of the total creditor debt, ten per cent of the number of creditors or by ten creditors in number.

What do we do as Directors?

Once the company is “in liquidation” the directors have to fill out a detailed questionnaire for the liquidator. They MUST provide all the company’s books and records to the liquidator. After this, there are a creditors’ meeting which a director must attend. After that, little else is required. You must comply with the liquidator’s request for information; it is a criminal offence not to do so.

Deemed Consent

Although it is the shareholders who place the company into liquidation, the appointment of the liquidator is subject to the ratification / of creditors. This can be achieved either through the Deemed Consent provisions or via a statutory Decision Procedure. Deemed Consent Following the implementation of the Insolvency Rules 2016, the creditors’ confirmation of a liquidator’s appointment can be obtained via the Deemed Consent procedure. In these circumstances creditors will be furnished with notice of Deemed Consent at least 3 business days prior to the Decision Date and at least 1 business day before the Decision Date will receive a report which includes the following information:

Will The CVL Be Advertised?

Notices of the Liquidation require advertising in the London Gazette. However, this is the only place the Liquidation remains advertised unless the Liquidator believes it is necessary to place additional advertisements.

Is It Possible To Reverse a Creditors Voluntary Liquidation Process?

In simple terms: YES

A CVL is a course of action, therefore, to prevent conflict by creditors, an example being a winding-up petition.

However, If the company can pay off the companies debts, then this would return the company to solvency. Then, the process may be halted, providing company assets not sold, and the company, therefore, remains registered at the companies house.

If then in the event the company has been struck off. Therefore, you’re required to reinstate the company through a formal application, known as an administrative restoration.

Liquidator’s Duties?

Liquidators have practical and statutory duties to adhere to, in the ordinary course of a liquidation.  These duties then include:

  • A CVL once appointed, therefore, closes the company with immediate effect, deals with outstanding company debts, asset realisations maximised so that creditors receive payment. Usually, when a company enters a CVL, there remains a shortfall to creditors; this though may be written off when the company liquidates.

CVL’s are then for insolvent companies only. When a company is a solvent though, however, requires closure. Then to realise assets and cash, a members voluntary liquidation (MVL) is then the appropriate option.

As a director  (director redundancy) remember you’re entitled to claim redundancy.

Liquidation Committee

Once the liquidator’s appointment remains approved, creditors can appoint a liquidation committee (min. 3, max. five, creditors). Unless a proxy state otherwise, any proxy holder at the meeting may represent his company as a committee member without further sanction. The first meeting often follows directly after the creditors’ meeting. The intent to confirm the meetings and other issues. The duties of the liquidation committee involve:

  • Countenancing the continuance directors’ powers, if required.
  • Agreeing to the appointed liquidator’s fees.
  • Confirming payment of creditors in full.
  • Approving settlements with company creditors.
  • Acknowledging the conduct of the liquidation reports from the liquidator.

Someone can represent another member of the committee in committee meetings, resign and reimburse reasonable travel costs.

Creditors Voluntary Liquidation (CVL) – Am I Able To Administer Another Limited Company?

A liquidation enables directors the opportunity to close the original insolvent company and start a new company. This though may only be allowed if no disqualification order remains issued against the directors. Directors must note, one of the prime duties of the Liquidator is to examine the previous actions of the directors. If there has been then the directors may face disqualification up to 15 years.

If the directors of an insolvent company decide they want to buy back the assets of the company, then usually this is done through a pre-pack liquidation. The assets of the company are sold to a new company with a new name but can be the same directors.

A pre-pack liquidation is when you sell the assets before the liquidation of the company takes place. An independent suitably qualified RICS valuer values assets for the protection of creditors (so assets are not sold undervalued).

Section 216: The Re-use Of A Company Name

Once a company is liquidated, and you have been a former director, then specific laws govern and restrict your involvement with companies with a similar or same name. Contravening them is however a criminal office and possibly punishable by fines, imprisonment or even both, for further reading view “The provisions of  Insolvency Act 1986, sections 216 and 217.

Company Creditors repayment?

The Insolvency Practitioner has assets of the company independently valued, then realised. The money then is distributed to creditors in order of priority.

The liquidator’s fees come first, followed by:

  1. Secured Company Creditors;
  2. Creditors Holding a Fixed Charge;
  3. Creditors with a Floating Charge;
  4. Preferential Creditors of the company;
  5. Unsecured Creditors;
  6. Shareholders of the company.

Will Liquidate my company Stop My Stress?

Voluntary Liquidation allows you to close your limited company promptly and formally. Once the liquidation process is complete, you can become a director of another company, but there are restrictions on the company name’s re-use. You are no longer entitled to trade under an identical or similar name – this could take you to court. It is worth mentioning that if you have been a director for many years and are on the payroll, you can demand dismissal from the government like any other employee. If in doubt, please contact HBG Advisory.>

Creditors Voluntary Liquidation (CVL) – When Is The Liquidation Completed?

The liquidation completed when every asset of the company realised, all creditors’ debt agreed and net realisations (after expenses of the liquidation) distributed to the creditors of the former company.

To cease the liquidation. The Liquidator, therefore, calls a final meeting of creditors and shareholders, at which the final accounts, detailing receipts and payments of the Liquidation with an attached report regarding the conduct of the Liquidation and if matters finalised.

What happens to employees?

Unfortunately, all assets will be sold during the liquidation process and the jobs of the workers will be laid off. If the funds are insufficient to pay employees, they, like the directors, can claim from the National Insurance Fund subject to meeting criteria,

What Happens To A Company After Insolvency?

If your company is in an insolvency procedure, then:

  • All CCJ, statutory demands or petitions to wind up cease;
  • Banks usually freeze accounts, pending contact from an insolvency practitioner;
  • Suppliers and customers terminate relationships and seek new business elsewhere;
  • Lenders then call in loans & security;
  • Director’s conduct is then investigated, including wrongful trading.
  • Remember Directors are entitled to REDUNDANCY CLAIM.

Creditors Voluntary Liquidation (CVL) – Why Choose HBG Advisory?

  • Over the past twenty-five years, our IP’s have taken appointments as liquidators of companies from large to small, owner-managed businesses;
  • We work with stakeholders to, therefore, enable a return to creditors; 
  • We then assist and advise stakeholders in the process to ensure little if any problems occur;
  • Our fees can either be fixed as advertised or, in complicated cases, discussed openly;
  • Confidential advice assured.

For details of our UK offices and meetings rooms view contact

For a more in-depth guide on fees of a Creditors Voluntary Liquidation view, Guide To Liquidators Fees download on R3.

Are you a debtor of a company that may go into Liquidation?

Can we then help?

      • HBG Advisory will explain what Liquidation means;
      • What then is the Liquidation process?
      • We can attend the creditors meeting (if held);
      • Business rescue issues;
      • All aspects of corporate insolvency;
      • What is a voluntary liquidation?

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