What are the main advantages?
The official corporate insolvency statistics released by the Insolvency Service last month for March means we get a clearer picture of how the first quarter of this year has gone for a lot of struggling businesses.
In March alone there were 1,844 CVLs which was 87% of the total number of company insolvencies recorded.
The equivalent number over the first quarter itself was 4,274 which as well as being 87% of the total recorded proving March wasn’t a fluke, was also the highest quarterly figure recorded in over a decade.
So why are more and more directors and business owners choosing to close their businesses down in the first three months of this year than any other previous period in the preceding ten years?
Chris Horner, Insolvency director with BusinessRescueExpert, said: “There are several reasons why CVLs are spiking at the moment.
“It’s the liquidation method that allows directors to maintain an element of control – through picking an insolvency practitioner that they’re comfortable in working with to oversee the process rather than having one imposed by creditors or the courts.
“It finalises any debts the business owes including bounce back loans, so in the vast majority of cases, they will end with the business and be written off allowing directors to move onto the next phase of their careers without debts following them.
“If a director receives all or part of their salary through PAYE and is paid like a regular employee then they will also be eligible to redundancy payouts which could be very timely for them.
“Ultimately, the CVL is proving to be the most popular method of closing down a business because of its strengths, the legal protections it provides and the simple five step procedure each one must follow allowing directors and business owners to be fully involved and active in each stage.”
Five steps from financial freedom
So what are these five steps making up the voluntary liquidation process? What does each one do and how long do they take to work through?
- Advice meeting
The first step is almost the most informal and usually free. It can also usually be scheduled at a convenient time and date to suit.
This is an initial company liquidation advice meeting held increasingly virtually / online where one of the company’s directors outlines the financial situation of the business to a professional insolvency practitioner.
With this brief overview and entirely based on the information available at this stage, they will be able to summarise all the options available and what information would be required if the director wanted to proceed to the next stage of voluntary liquidation.
- Information review and further advice
The next step is a formal review based on the information provided and a fee quote along with the terms of business to agree. This will usually take place within two weeks of the first meeting and will also be free of charge, although further advice and professional activity will be chargeable from this point of the process onwards.
Here the advisor will be able to firm up their initial recommendations or make new ones based on the more in depth and accurate information provided. Liquidation might be the best option for the business but there may be others you haven’t considered that are applicable too.
More specific details can be discussed and questions answered at this stage including how to deal with company assets and potential purchases as well as what would happen to outstanding leases, contracts and personal guarantees.
- Instruction and convening meetings
If you’re happy to go ahead at this stage and you agree to the terms and conditions then you have to formally instruct the practitioner to liquidate the business on your behalf.
If this is the direction you would like to go down then we’ll arrange the next step – which is separate meetings of shareholders and creditors – that will take place usually between nine to 21 days after the formal instruction is undertaken.
- Shareholders and Creditors meetings
These are two meetings that have to be held as part of a liquidation, which at least one director has to attend virtually,
The shareholders meeting takes place first, followed by the creditors meeting with both lasting between 30 and 90 minutes to answer any questions and outline the process the liquidation will follow.
Once these meetings are concluded then the business is formally and legally placed into liquidation.
- Post liquidation and closure
This is where all the loose ends are tied up and every outstanding issue is dealt with. This could take for example between nine and 12 months depending on what those issues are and how complicated they are to resolve.
The company’s books and records are moved to the liquidator’s office and all remaining assets are realised.
All directors have to complete a questionnaire to ensure that there are no further outstanding matters and once we’re happy that this is the case then the liquidation is closed. Three months after this date, the business is formally dissolved and removed from Companies House.
The spike in creditor voluntary liquidations occurred in the first three months of this year before the real rise in energy bills and cost of living increases began to really filter through to businesses, employees and their customers.
With inflation and interest rates also beginning to rise, to levels not seen in years, this will further squeeze consumers’ discretionary spending and also eat into their essentials with almost certain negative results.
This is why businesses that are worried about what the future holds should use this immediate time wisely and get some professional, experienced and free advice.
Our experienced advisors will be able to give you some clear and honest advice based on your situation which may or may not involve a range of insolvency strategies to improve your company’s chances of surviving and then thriving after this difficult economic period.
But the best way of doing this is to take that first, essential step and get in touch with us today.