Creditors Voluntary Liquidation

Creditors Voluntary Liquidation [CVL]

A CVL is used where the directors decide an insolvent company should no longer continue trading and should be wound up. We can advise you about the decision to cease trading and the implications for employees and for the directors. We’ll prepare all the documentation required as well as being there to deal with all your queries and concerns. Companies with assets not require any up-front fees to undertake a Creditors Voluntary Liquidation.  If you have any queries or need an appointment (at our offices in York or elsewhere) please call us, email us or fill out the form on the contact page.

Photo by Luke Porter on Unsplash

Why enter a CVL?

A Creditors Voluntary Liquidation is often appropriate where a company is insolvent and cannot pay its debts when they are due. In a CVL a liquidator is appointed to liquidate all the company’s assets and, where possible, to distribute the funds realised between the creditors in proportion to their claims. Before initiating a Creditors Voluntary Liquidation it will be important to verify that the CVL is necessary and that it is the best available option. We can help with this assessment. Contact us for a free, no obligation consultation. This can be done on the phone, by video call or face-to-face.

Implementing a CVL

Once it has been established a Creditors Voluntary Liquidation is the best option for your company we can quickly move to get the CVL underway.

a) Planning. Before starting work we will need to get a feel for the business in order to establish the scope of work required and to identify the most likely issues. [This may have been covered in sufficient detail in previous discussions to evaluate the possible options.]

b) Engagement. Once the scope of work has been established we will issue a formal engagement letter for the board’s approval. We will also need to be able to verify the identity of the company’s controlling directors and shareholders. A bill may also be raised to cover work and disbursements up to the date of liquidation though sometimes payment can be deferred.

c) Information required. We will need details of all creditors (amounts owed, addresses, references). The accounting records will normally need to be made available too. The directors, with our assistance, will need to prepare a Statement of the Affairs of the company (a financial snapshot) as well as a summary of its trading history for circulation to the creditors. 

CVL (Creditors voluntary liquidation) is the commonest form of liquidation in the UK

d) Initiation. Both the board and the shareholders will need to approve any decision to put the company into CVL. Notice will be given to the creditors that, as from a specified date (usually around a week later) a liquidator from this firm will be appointed to the company. (Creditors do though have the right to choose another liquidator instead.) The notice will also be advertised in the London Gazette.

What does a CVL cost?

Fees vary depending on the amount of work required. As the company is insolvent the costs of the Creditors Voluntary Liquidation will effectively be paid by the creditors. However, if the assets of the company are not sufficient to cover the expected costs of the liquidation the fees may need to be paid by a shareholder/director if the CVL is to proceed. Where there is doubt about the sufficiency of the assets we may seek a deposit from a shareholder/director which can be kept separately from liquidation funds and refunded in full or in part if asset realisations turn out to be enough to cover CVL costs.

Practical issues, personal consequences and other concerns

Practical issues.

Any kind of company can go into Creditors Voluntary Liquidation. Each business and each situation has its own unique set of circumstances and practical issues. Liquidators expect this and know their work isn’t finished until each issue is resolved one way or another. That said, many issues are naturally simplified as financial claims on the company by the CVL process itself. Make sure you raise all potential issues with your liquidator, particularly those unique to your trade or circumstances.

Typical practical issues surround how to deal with employees and pressure from landlords, banks, HMRC and other creditors. It’s important to communicate well so all parties have a full understanding of the position and what can realistically be done about it.

The circumstances of a CVL are never easy but most people respond well to bad news provided they feel reassured that they have been dealt with fairly. Trust is key. If communication is bad stakeholders will assume the worst i.e. that they are being treated dishonestly. Some creditors/suppliers may have security or other proprietary rights and it is important that directors understand these and do not infringe them. Employees, too, of course, have a range of important rights. 

Personal consequences

There are a number of ways a Creditors Voluntary Liquidation can have a financial impact on directors and shareholders personally (apart from loss of income). Occasionally, particularly where a company has previously been a sole trader, some supplier accounts might have been taken out in the personal names of the director/shareholder. Personal guarantees may have been supplied on bank or supplier credit facilities. Directors are not generally personally liable for HMRC debts unless there appears to be evidence of that they have acted negligently or fraudulently. 

Employees

When a company goes into CVL the business normally ceases to trade and so employees are normally made redundant straight away. It is likely that employees will be owed money by the company. The company may not be able to pay these claims but some or all of their claims will be paid to them from the National Insurance Fund. Employees can apply online to claim any money they are owed. For further detail please refer to our FAQ.

Other concerns.

For most directors a Creditors Voluntary Liquidation will be a new but unwelcome experience. A certain amount of anxiety is to be expected. Nonetheless, there is no reason not to take positive action. It is important to find a liquidator you can trust because it is them you will be relying on to guide you. Part of their job is to carry the burden of dealing with stakeholders. Once appointed as liquidator the powers of the directors cease and creditors will deal primarily with the liquidator.

a) Directors are likely to have some doubts about how best to proceed or, indeed, whether any action is necessary. Consulting at an early stage is advisable. If no action is required and the situation can be resolved without a CVL nothing has been lost. Take advice and consider all available options.

b) Directors are well aware of their responsibilities and may feel a certain amount of guilt about letting down stakeholders. Modern insolvency law in the UK is part of a framework geared to promote enterprise. Naturally, there are mechanisms to dissuade reckless behaviour but insolvency laws and liquidators are not primarily focused on apportioning blame. The laws are designed to be an efficient way of rescuing viable businesses (if possible) and, if not, providing a mechanism to return value to creditors. Very often, if a liquidation is well handled, creditors too are understanding and supportive.

c) Directors and shareholders may also feel a sense of loss in that, having invested time and money in the company, it has ended in CVL. This is understandable. However, it’s worth keeping in mind that: the old business no doubt served many people well; its directors/shareholders are likely to have learned much; and it may be possible to build a new business in the future. In any case, if CVL is the right option directors should act sooner rather than later.

Duration of the liquidation

Creditors Voluntary Liquidation vary widely in duration depending on the size of the business and the complexity of the issues arising. A liquidation length of 1-2 years is probably average though smaller ones may well last under 12 months. Typically, there is much activity in the first couple of months and then, as issues are resolved, the activity reduces. When all issues have been resolved the case will be closed and the company can be dissolved.

Why choose Silva?

There are many aspects to running even the simplest business and no two businesses are exactly alike.  We’ve all had frustrating experiences when dealing with larger firms. They depend on their clients fitting into their systems and not all clients get the consistent personal service they need. Issues raised can also fall between the cracks due to imperfect internal communication.  A Creditors Voluntary Liquidation can be a stressful time and is almost certainly unfamiliar. It’s a time when you need to be dealing with someone you can trust. You do not want to have to repeat yourself. You do want to know who to contact. You do want to feel comfortable that the issues you raised are being dealt with. 

When dealing with your Creditors Voluntary Liquidation good service and communication is critical not only for you but for the company’s other stakeholders. Bad service can make an uncomfortable situation completely intolerable. Silva Insolvency & Recovery Services Ltd is a small firm. Service is highly personalised. This means that, instead of communication going over your head (or being unnecessarily dumbed down) it can be pitched at a level you can easily understand.  Most clients have a single point of contact and a single case worker from the first meeting all the way through to completion.

Our liquidator is Jeremy Wood. Jeremy Wood is a licensed Insolvency Practitioner, a Chartered Accountant with the ICAEW and a member of R3 (the Association of Business Recovery Professionals. Find out more here.


NOT LEGAL ADVICE.
Information made available on this website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. Silva professionals will be pleased to discuss resolutions to specific legal concerns you may have.