Common questions about Creditors Voluntary Liquidation’s (CVL’s).
for a CVL
Is a CVL right for me?
If your business is insolvent, no longer viable and has probably received some threats from creditors, a CVL is a good solution to your company’s financial situation to deal with it before it gets any worse. It is not something that works for everyone. It is a way to put your company to bed and avoid accusations of wrongful trading.
What does being insolvent mean?
Being insolvent means that your business is suffering from cash flow difficulties and may have received or are facing threats and/or action from its creditors.
There are two definitions of insolvency – cash flow insolvency where debts cannot be paid as they fall due and balance sheet insolvency where total debts exceed the value of total assets.
Read more on – is my company insolvent?
How much will a CVL cost?
Liquidation costs are normally taken from the sale of assets proceeds. Obviously, no two situations are the same, as there is less assets to sell in some businesses than others and some are more complex. To give you a better estimate of the cost, we would need to speak to you to gain a better understanding of your company’s assets and liabilities.
What happens to my creditors?
Your creditors will be informed of proceedings throughout the liquidation process. If there is a dividend they will be paid on a pro rata basis relating to how much they were owed.
How long does it take to carry out the CVL?
The amount of time it takes to carry out a CVL is difficult to predict as it can be a long process or a short one dependent on your business and how it works. For a more detailed answer, get in touch – we can talk through your situation and give you the advice you require.
What happens if my choice of insolvency practitioner (IP) is rejected?
All shareholders need to agree on the choice of IP before being able to call a creditor’s meeting. Once an IP is appointed by shareholders, the creditor’s meeting will be convened for an agreement on the appointment of the liquidator. The IP acts as liquidator in the CVL process and if the IP is rejected as liquidator a suitable replacement needs to be found and agreed upon.
In some occasions, creditors can elect to form a creditor’s committee to monitor the liquidation procedure and the conduct of the liquidator throughout the CVL process. To form a creditor’s committee, there must be between 3 and 5 members.
Is my home safe in a CVL?
If you run a limited company, you are protected through limited liability and as a result, your personal monies and assets will not be affected if your company is in debt or goes through a formal insolvency procedure. If you are found guilty of wrongful trading (trading while aware that your company is insolvent), you will forfeit your limited liability from the time when you knew the company was insolvent and your personal assets could then be at risk.
There is another situation in which you may become personally liable for business debts. Some creditors, such as banks and landlords, may ask you to sign a guarantee as part of their conditions. Your personal liability would only extend to that creditor for the amount of the guarantee.
What happens to my personal credit rating if I enter a CVL?
As a director of a limited company, you will be covered by limited liability and therefore your personal credit rating will not be affected by company debts or insolvency. However, if you run a sole trader business or a partnership, your personal credit rating is likely to be affected if there has been a CCJ registered or if you become bankrupt.
When there are multiple Directors in my company?
Practically all directors should agree that a CVL is the correct procedure for the company before it can enter into it. If all directors do not agree then a formal board meeting must be called and the resolution passed with a majority vote.
What happens to my employees during Liquidation?
Your employees will be made redundant during the liquidation process and may receive redundancy payments through sale of assets. If not, they should get in touch with the appointed liquidator for advice on how to apply for any redundancy money via the Redundancy Payments Service.
What happens when I am made redundant?
The liquidator takes control of the company on appointment so the directors loses their powers to the run the company. They will get treat like the other employees and are likely to be made redundant. The director is subject to investigation covering the three year period preceding liquidation.
You may be entitled to claim redundancy payment from the government.
My creditors object to the Liquidation?
When your company is insolvent and you and any other directors agree that liquidation of the company is the best option, you need to obtain the agreement of 75% (by value) of shareholders. The company should cease trading immediately.
You will need to formally instruct a licensed insolvency practitioner (IP), such as Company Liquidation Solutions. We will help you to close down your company, and legally tie up any loose ends. Creditors cannot object to the liquidation although they can object to the appointment of your choice of liquidator.
What if I don't have the funds to Liquidate?
In this situation there are a few possibilities. One is to await one or more of the company’s creditors to petition for a compulsory liquidation. At this stage, the company should have ceased trading to ensure the position of creditors does not deteriorate. This is not the best course of action if you wish to salvage the business.
If you wish to try to save the business, an alternative would be to pay the costs personally.
You may also be entitled to claim redundancy from the government, which could pay for or towards the liquidation.
What happens to company assets in a Liquidation?
The company assets will be sold off with the money distributed to creditors on a pro rata basis during the liquidation procedure. Personal assets will be protected via limited liability if you are the director of a limited company.
Only pay some of my creditors?
No. All creditors should be paid on a pro rata basis and you should treat all creditors equally and not prefer any of them. Any transactions in the period preceding liquidation may be over turned by a liquidator if there is evidence of a preference.
I trade whilst insolvent?
Wrongful trading occurs where a director continues to trade a limited company in the knowledge that the company is insolvent and where there is no reasonable prospect of avoiding insolvency. Directors are expected to take every step to minimise loss to creditors.
Directors found guilty of wrongful trading may lose the protection of limited liability from the time they knew (or should have known) that the company was insolvent.
Open another company after a CVL?
Yes, you can open another company after a CVL as long as you are not personally bankrupt or have been disqualified as a company director.
Continue to trade through a CVL?
No. When the directors of a company become aware that their company is insolvent and they decide a CVL is the most appropriate action to take, the company should stop trading immediately.
This is to avoid trading whilst insolvent which could be to the detriment of creditors and can have ramifications on the directors during the director investigation.
Be a director of another company whilst being in a CVL
Once the CVL procedure has started, you can become a director of another company. While the appointed liquidator is going through the process of the CVL on behalf of your company, you are left free to pursue other ventures.
Keep my current trading name after a CVL?
It is possible to keep your current trading name after a CVL but it is important that you follow correct legal procedures. You would need to obtain legal advice and there is a cost involved in this.
Buy company stock back?
You can buy your company’s stock and assets back at market value from the liquidator.
Trade from the same premises?
If it is premises you have bought personally, you can continue to trade there. If you rent or lease the property, you can try to negotiate another lease with your landlord. If the company owns the premises, the asset will be sold in CVL but you can offer to buy it back at market value.
Why do I need an Insolvency Practitioner for a CVL?
It is a legal requirement that a CVL must be carried out by a licensed and regulated insolvency practitioner acting as liquidator. Such as ourselves.
Can creditors change their mind once the CVL has been agreed?
No, once a CVL process has commenced, it can be difficult to put a stop to it. However, if there is evidence that a director has been trading wrongfully, negligently, fraudulently or illegally, such matters should be brought to the attention of the liquidator who will be undertaking an investigation into the conduct of all directors.
What happens to my credit rating after a CVL?
Nothing will happen to your personal credit rating if you are the director of a limited company as a result of limited liability. However, if you are the director of a sole trader business or a partnership, your personal credit rating is likely to be affected.
I have a directors’ loan, what happens to this?
If you have taken money out of your company and your company enters liquidation, you need to pay the money back to the company as you are a debtor and your debt is an asset of the company. You should discuss this with us in more detail so we can identify the nature of your director’s loan.
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