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CREDITORS' VOLUNTARY LIQUIDATION
Although it is possible to salvage the business, and sell it on, to all intents and purposes a Creditors' Voluntary Liquidation ("CVL") represents the 'death' of the Company. It is therefore a solution which should only be used after other possibilities have been considered and dismissed.
The process starts with a Directors' meeting, which authorises an Insolvency Practitioner ("IP") to call meetings of shareholders and creditors. These meetings are usually called for the same day, with one immediately following the other.
At the shareholders' meeting, resolutions are passed to place the Company into liquidation and to appoint a particular IP as Liquidator. Until this meeting, the Company is not in liquidation and the Directors retain full control.
At the creditors' meeting, a package of information is provided to enable the creditors to understand why the Company has failed. The appointment of the existing Liquidator is ratified, or overturned and a replacement found. The creditors have a choice as to whether to form a Committee.
The Liquidator:
- sells the assets
- collects the book debts
- agrees creditor claims
- distributes the funds
- reports on the actions of the Directors.
In the course of his investigations, the Liquidator will look at various possible offences. These include:
- Wrongful trading - trading when you knew, or ought to have known, that the Company was insolvent
- Preference - have you treated one creditor better than another, particularly if the preferred creditor is a member of your family or holds a personal guarantee from you
- Fraudulent trading - for example, taking deposits from the public knowing that you will never supply the goods.
A Director faces a ban from being a Director for between 2 and 15 years if his actions in the time leading up to the liquidation warrant it.
Can I buy the assets, or set up in a similar business?
There is nothing to prevent a Director from setting up in a similar business. However, there are rules governing the use of the name. It is worth getting advice on this matter.
What will happen to my employees?
Employees' contracts of employment are automatically terminated with the appointment of a Liquidator, if they had not been dismissed previously. Claims can be lodged with the Redundancy Payments Service ("RPS"), and payments will be made direct to employees in respect of arrears of wages, holiday pay, redundancy and pay in lieu of notice. The RPS will then stand in the shoes of the employees for receipt of any dividends.
COMPULSORY LIQUIDATION
This is a liquidation process which is dealt with through the Courts. It may be initiated by a number of parties, particularly:
- A Director
- A shareholder
- A creditor owed more than £750
The process starts with the serving of a Winding -Up Petition. This is usually heard in Court 6-8 weeks later. Read the Petition carefully to ensure that you do not miss the date.
When the Petition is advertised, the Company's bank account may be frozen. The existence of the Petition could be logged against any property owned by the Company, preventing it from being sold.
When the Petition is issued, take the matter seriously. Is there any reason for not paying the debt? If the only reason is the lack of funds, the Company is insolvent in that it cannot pay its debts as they fall due. The other element of the definition is the fact that liabilities exceed assets.
You may decide to pre-empt the Compulsory Liquidation by initiating the process of a Creditors' Voluntary Liquidation ("CVL"). This tends to be considered more favourably by creditors, as a Compulsory Liquidation is viewed as having been forced upon you while a CVL is the way a responsible Director would choose to close a Company.
If the Petition is heard in Court, a Winding up Order is granted. The Official Receiver, a Civil Servant employed by the Insolvency Service, will decide whether to deal with the liquidation himself, or to appoint an Insolvency Practitioner ("IP"). If there are assets, he will appoint an IP as Liquidator.
The Liquidator's duties involve:
- selling the assets
- collecting the book debts
- agreeing creditor claims
- distributing the funds
He will not be responsible for investigating the actions of the Directors. This duty will remain with the Official Receiver.
What could happen to me as a Director?
The Official Receiver will investigate your actions as Director, looking at various possible offences. These include:
- Wrongful trading - trading when you knew, or ought to have known, that the Company was insolvent
- Preference - have you treated one creditor better than another, particularly if the preferred creditor is a member of your family or holds a personal guarantee from you
- Fraudulent trading - for example, taking deposits from the public knowing that you will never supply the goods.
A Director faces a ban from being a Director for between 2 and 15 years if his actions in the time leading up to the liquidation warrant it.
What will happen to my employees?
Employees' contracts of employment are automatically terminated with the granting of the Winding up Order, if they had not been dismissed previously. Claims can be lodged with the Redundancy Payments Service ("RPS"), and payments will be made direct to employees in respect of arrears of wages, holiday pay, redundancy and pay in lieu of notice. The RPS will then stand in the shoes of the employees for receipt of any dividends.
MEMBERS VOLUNTARY LIQUIDATION
The Company is a separate legal entity. This is true even where there is only one shareholder and one Director. If you decide that you no longer want to trade, what do you do to release the assets from the Company?
If you can settle all outstanding debts, including any contingent debts (ie potential debts which have not yet been confirmed) within twelve months then the Members' Voluntary Liquidation may be right for you.
Working with your tax adviser, we will ensure that the funds are taken out of the Company in the most tax-effective manner, whether as income (bonuses or dividends) or capital.
We are willing to provide a fixed quote in advance of commencing the work.
FOR A FREE INITIAL CONSULTATION TELEPHONE 0800 0321 449.
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