Creditors voluntary liquidations (CVLs) are the most frequent type of insolvency procedure being used by directors in the UK at the moment.
In the latest set of corporate insolvency statistics from the Insolvency Service, they made up 80% of all the 1,967 cases recorded in September.
It’s the method used to close an insolvent business efficiently and finally but there is a lot that remains unclear or potentially unknown to directors considering using one to close their business.
So we’ve compiled a list of the most common questions and queries we receive from business owners about CVLs and answered them for you – right here!
When is a company considered insolvent?
A company is considered insolvent if it is unable to pay its debts as they fall due or if its liabilities exceed its assets.
Who initiates a CVL?
As the title suggests a CVL is a voluntary way of placing an insolvent company into liquidation. The process can be initiated by the shareholders or directors of a company when they believe they’re unable to pay their debts.
What is the role of a liquidator?
A CVL is a formal insolvency process and therefore it must be carried out by a licensed insolvency practitioner (IP). Their role is to realise the company’s assets, investigate its financial affairs, and distribute the proceeds to creditors in a fair and orderly manner.
How are creditors paid in a CVL?
Creditors are paid in a specific order of priority outlined in insolvency laws. Secured creditors are paid first, followed by preferential creditors, and then unsecured creditors. Shareholders are paid last, typically receiving nothing if the company’s assets are insufficient to cover all debts.
What happens to the company’s assets?
The IP will appoint an independent agent who will value the company’s assets and oversee their sale. They will ensure that the right price is agreed for the assets, taking into account the age, condition and saleability.
The proceeds from the sale of the company’s assets are then used to pay off the creditors. Any remaining funds, if available, are distributed among the shareholders according to their shares.
How long does a CVL process take?
The process varies depending on the size of the complexity of the business. It could be completed in as little as nine months or less, depending on the attitude and actions of the company’s shareholders and its creditors.
How much does a CVL cost?
The cost of placing a company into liquidation can vary anywhere between £2,500 to £7,000 depending on several elements:
- How many creditors are owed money?
- How many assets does a business have and what is their value?
- Will the business name or a similar one be reused?
- Have any of the debts been personally guaranteed?
- Will there be any redundancies?
- Would you like to buy back any of the assets from the liquidator?
Once these are answered we can get a clearer view of your business’s unique circumstance.
Can directors be held personally liable for company debts in a CVL?
In most instances, directors of limited companies are protected from personal liability for company debts. However, if the director has engaged in wrongful trading or fraudulent activities they can be held personally liable for company debts.
Wrongful trading occurs if a director continues to incur debts when they knew or should have known that the company had no reasonable prospect of avoiding insolvent liquidation.
Can the company be rescued during a CVL?
Once the CVL process has begun, the company cannot be rescued. However, in some cases, the business can be sold to a third party, often through a pre-pack administration, which allows for the continuation of the business under new ownership.
What happens to my staff during a CVL?
Liquidation ultimately means the end of the business, so any staff remaining will be made redundant. If there are unpaid earnings, or outstanding employment entitlements owing to staff, they will be able to make a claim for any unpaid earnings and outstanding employment entitlements from the National Insurance Fund.
Every business is different and the situations they find themselves in are different too. Our “BRE Answers” series is not meant to be complete or exhaustive but to provide a basic explainer.
If you want to know more about creditors voluntary liquidations and how they could benefit you then please get in touch with us!
After a free consultation with one of our team of expert advisors you’ll be in a better position to choose your next move and probably with a better range of options than you originally thought you’d have.
All you have to do is pick the best time and date for you and we’ll do the rest.