Insolvent Company Liquidation Advice
An insolvent company liquidation (or CVL) is an insolvency process used to close down a business when it cannot afford to repay its creditors in full. This is the most commonly used voluntary insolvency process for limited companies due to its cost effectiveness and ability to write off debt.
Insolvent company liquidation advice is given out freely by many organisations however you should take care to ensure that it is given by a qualified adviser as the wrong advice can be disastrous. Here at bridge Newland, we have fully qualified staff and a licensed IP to ensure that you get the best advice possible, so read on for our detailed text and video support, free guides and diagrams.
Advice on What is an Insolvent Company Liquidation?
Bridge Newland Limited specialise in both forms of company Liquidation for insolvent companies, being a shut down liquidation, and a start afresh liquidation, and provide both at a cheap rate. For more advice on our liquidation packages, go to our packaged solutions pages.
Both voluntary liquidation processes involve the directors of the company signing a board meeting minute (to agree to voluntarily place the company into liquidation) and then meetings of the members and creditors are called to ratify this action. At least 21 days notice of the members meeting is usually given to shareholders although this can be as little as 7 days if the shareholders agree to short notice. The process also involves the preparation of some financial information on the Company (done by Bridge Newland Limited) for presenting to creditors for consideration at the Creditor’s Voluntary Liquidation meeting and for forwarding to creditors in the post. This meeting must be held at a location convenient to the creditors of the insolvent Company.
The resolutions considered at the meetings of members and creditors (e.g. the appointment of the Liquidator etc.) are passed when a majority (by value) of those who vote, vote in favour of them. Once passed, this is when the Company is considered formally in Liquidation.
Once the liquidator is in office, he can proceed with selling the company’s assets. Where realisations are greater than the costs of the Liquidation, the Liquidator must distribute these surplus funds to creditors by way of a ‘pence in the pound’ dividend on their claims. The Liquidator also has a statutory duty to investigate the affairs of the insolvent company, to establish the reasons for the company’s insolvency and to consider the conduct of the directors.
When a company becomes insolvent, the directors’ duty of care is no longer to the company’s shareholders, but to its creditors. The directors must ensure that they act in the creditors’ interests at all times, and CVL provides a method by which they can fulfil their statutory obligations whilst ensuring that the company’s business is wound up properly, leaving no loose ends.
The main advantages of a company liquidation are…
- It is a much simpler process and therefore is often a cheaper process.
- The Insolvency Practitioner who deals with the Liquidation is generally the one instructed by the Directors as opposed to it being the Official Receiver (a government official) through a Compulsory Liquidation or an Insolvency Practitioner nominated by a creditor.
- There are more powers given to a Liquidator to investigate the affairs of the Company and its Directors.
- There is no automatic stay on legal actions (like in a Compulsory Liquidation) therefore ongoing legal claims by the insolvent Company against a debtor can be continued during the Liquidation, or assigned.
- The advertising of the creditor’s meeting and then the Liquidator’s appointment is no longer mandatory (it’s discretionary).
- Directors comply with their legal duty of care by taking proactive action.
The main disadvantages of a company liquidation are…
- There is less protection against legal action from creditors than in other formal insolvency processes.
- Some consider that where Directors wish to set up and trade a new business, there are more logistical issues due to the time which passes from instruction until the Company is formally in Liquidation.
- Should the Directors be involved in the promotion, formation or management of a Company going forward with a same or similar name to the insolvent company, then there are restrictions on the use of this name and notice of its use may be required.
We have separate information pages for our close down liquidation package or restart (phoenix company) liquidation package therefore to view these go to packaged solutions.
Click on the image below to download our simple seven stage flow diagram which explains how to put your company into Liquidation and what you should consider:-
Insolvent Liquidation (CVL) Flow Diagram
…or for our detailed PDF guide on Creditors Voluntary Liquidations, which helps explain the process further and which helps you decide whether it may be right for your Company, click here:-
Insolvent Company Liquidation (CVL) Advice Guide
If an insolvent company liquidation is not suitable for you (usually because you do not have the funds to pay the costs to voluntary place your company into liquidation) then it may be that a Compulsory Liquidation is more suitable.
A Compulsory Liquidation is usually where the creditors or the court present a Winding up Petition against the insolvent Company, to place it into Liquidation as opposed to the directors or shareholders voluntarily doing this and therefore paying the costs of this in the process.
The Compulsory Liquidation involves the court therefore they will set a date to consider the petition at which point the court judge will decide whether the Company should be placed into Liquidation. The Official Receiver (a government body) then deals with the Liquidation, as opposed to an independent insolvency practitioner, unless there are sufficient funds in the case to pass it to an independent insolvency practitioner in which case this is done on a rota basis. The Directors and Shareholders do not have to agree to this action.
HMRC are the most prolific presenters of petitions due to their hard line stance on unpaid VAT and/or taxes but any creditor can issue a petition providing they have a debt of over £750.
The only real advantage to a Compulsory Liquidation is the cost saving where as the disadvantages include, stricter investigations, higher costs, a longer time to resolve and a black mark on your name as a Director for not voluntarily resolving to Liquidate the Company. Therefore if you think that Liquidation may be suitable for your company, a Compulsory Liquidation should be the last resort.
Bridge Newland are Liquidation specialists, and at rates starting from £3,000 plus VAT we are one of the cheapest around, therefore if you need further help and advice regarding our Liquidation services, please contact our free phone number on 0800 612 6197. All initial advice is free.