Creditors Voluntary Liquidation (CVL)

Creditors Voluntary Liquidation.

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What is a Creditors Voluntary Liquidation?

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Updated: August 31st, 2020

What Is A Creditors Voluntary Liquidation (CVL)?

A Creditors Voluntary Liquidation procedure(CVL), closes an Insolvent company down for good voluntarily.

Voluntary Liquidation Creditors

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

To Liquidate my company, therefore, requires a vote by shareholders of the company in favour before having a section 100 meeting and the decision date to cease trading.

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What is a Creditors Voluntary Liquidation? – Definition.

A CVL is a formal company closure insolvency process 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 consider 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 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 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.

What is the difference between voluntary winding up of a company by members and by creditors?

Simple:

By Members: This is when the company is solvent and will pay off all its debts within twelve months of the meeting and closure.

By Creditors: The company does not have the ability to satisfy all its debts. Creditors voting appoint a liquidator once they have an agreed decision date.

What is a Company Creditor?

A company creditor could be a supplier, bank, finance organisation person, supplier who has supplied goods, money or services and awaits repayment at an agreed date. Therefore the company owes money to its creditors.

What is Trade Creditor?

Trade creditors remain usually a supplier to the company for raw material, goods for resale. They are usually unsecured unless a guarantee has been given or some other form of surety.

Voluntary Insolvency Meaning?

When debtor acknowledges their companies position and that it may longer trade due to adverse cashflow. They then request help to sort the problem out with any force from a creditor. They act voluntarily.

Impact of Coronavirus Covid19

The ever-changing impact of the corona19 virus pandemic hitting 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 monies while under lockdown?

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

Governments 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.

 CVL- Business Finance

Coronavirus (COVID-19) support by the government has been made available to employers and the self-employed, sole traders and limited company directors. You may, therefore, be eligible for loans, tax relief and cash grants, whether your business remains open or closed. For further information view support for business and the self-employed people during coronavirus

Why Choose A CVL? – HMRC Arrears perhaps?

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 severely 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 that 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:

  • It has tax bills; it may then not be able to repay;
  • The court proceeding may be pending;
  • HMRC Time to pay arrangements failed;
  • 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;
  • Overall, 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;
  • 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 directors 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 setting 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)

What is A CVL?

A CVL involves the voluntary winding up (Not via a winding up petition) of an insolvent company. For a company commencing a CVL, the company directors must recommend to the company shareholders at a shareholders meeting, that the company starts Liquidation as the business is no longer a solvent company. i.e.

  • Cash flow insolvent – The company can no longer afford to pay its debts as and when they fall due;
  • Balance sheet insolvent – The liabilities of the company exceed the value of the company’s assets.

A voluntary liquidation creditor is the same as CVL UK.

What Is Voluntary Liquidation?

Often referred to as Voluntary Liquidation UK.

Two types of voluntary Liquidation exist.

Members voluntary liquidation (MVL), for when a company remains solvent.

A CVL for when the company is Insolvent.
The voluntary term relates as no creditor is petitioning to wind the company up.

A CVL needs a meeting of the shareholders and creditors to pass resolutions and therefore appoint a liquidator. However, the Court or Official Receiver is part of voluntary Liquidation.  The procedure is swifter than a compulsory liquidation.

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 dependant on the type of asset, the type of business and its size and spread.

Commencing A CVL

Stages of a Creditors’ Voluntary Liquidation?

Arrange a board of directors’ meeting or sole director and also discuss and agree on a statement of affairs.

Call a stockholders meeting.

The creditors’ meeting.

The company now in Liquidation.

Terminating the Liquidation.

This process commences by the directors of the company requiring Liquidation. They have a meeting of shareholders and confirm that the company is Insolvent and has no plan to move forward. The company then ceases to trade under 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 total number of creditors. If any of the above apply, then before the pandemic, a meeting was possible for creditors to attend. During the current pandemic, no physical meetings allowed.

    CVL – Why Can’t I Strike The Company Off?

    A company is struck off from companies house register when an application made to companies house, therefor the removal from the register takes place.  Though, may only apply if it:

    • did not trade in the last three months
    • has not changed names in the previous three months.
    • Not presently threatened with Liquidation.
    • no agreements in place with creditors, e.g. a “Company Voluntary Arrangement.” (“CVA”)

    Could Some Assets Be Sold?

    ✔ Would a company voluntary arrangement work to seek protection from creditors and continue trading?

    ✔ Assess your position with regards to any personal guarantees, directors loan accounts, directors redundancy pay.

    ✔ Appoint a licensed insolvency practitioner if a CVL is the best solution. They take over all dealings with creditors and staff.

    Your business in four weeks will close. Leaving you free to plan a new future. You may also buy back the assets of the company and start trading again.

    Creditors Voluntary Liquidation (CVL) – 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 members’ 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 total number of creditors or by ten creditors in number.

    Will The CVL Be Advertised?

    Notices of the Liquidation require advertising in the London Gazette. However, this is the only place that the Liquidation remains advertised unless the Liquidator feels 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 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 your entitled to claim redundancy.

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

    A liquidation enables directors the opportunity to close the old insolvent company and start a new company. This though may only be allowed if no disqualification order remain seen 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 undervalue).

    Phoenix Companies

    What Is A Phoenix?

    It is not illegal to propose a phoenix company after the failure of a previous company. It is essential that when setting up a phoenix company, you and your advisor observe the Insolvency Act 1986 and rules as set out in the Insolvency Rules 2016. If you follow and strictly adhere to these, then you are within the law.

    Failure to adhere then exposes the new directors to censure and possible prosecution, along with fines, prosecution and potential personal liability, with a potential custodial sentence.

    Remember at all times any actions must not be to any detriment of the previous creditors avoiding at all times fraud.

    For more detailed help view:

    • Assets acquired by the phoenix business from the previous failed liquidated company;
    • Re-Use of company name by the phoenix business

    If you require clarity and guidance on any of the above, do not hesitate to contact HBG Advisory on 0800 612 5448.

    Section 216: The Re-use Of A Company Name

    Once a company is liquidated, and you had 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.

    Liquidating A Company Then With No Assets

    When your company has no assets or money, then directors express concern about how they may pay the process of Liquidation.

    Options available:

  • The easiest is if you qualify for redundancy payments? If so, you, therefore, may use the amount to fund the insolvency. If not entitled to redundancy; however, then it is up to the directors to support the Liquidation personally. So, if this is the case, then please contact HBG Advisory, and able to discuss openly potential costs based on your situation.

    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 A Company After Insolvency?

    If your company is in an insolvency procedure, then:

    • All CCJ, statutory demands or petition 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;
    • Directors 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

    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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  • For help on a claim for redundancy click on REDUNDANCY CLAIM
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