Your business reborn
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It's possible to restructure your business and move forward with a new entity.
A Liquidation or Creditors Voluntary Liquidation (CVL) to give it its full title, is a procedure initiated by the directors of a company to voluntarily bring about the end of the business when the company is insolvent. The process is undertaken by a Licensed Insolvency Practitioner who acts as Liquidator.
However, this doesn’t necessarily mean that this is the end for your business. It can often be carried forward in a new company.
Liquidation can be used as a viable way to restructure your business in a new entity and leave behind historical debt. Directors are given the opportunity to re-open another company and buy back the assets and goodwill to enable the business to continue.
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A Creditors Voluntary Liquidation (CVL) must follow the procedure set out in the Insolvency Act 1986 (as amended).
We will assist the Board with the preparation and administration at each stage, including drafting notices, minutes and other documents where appropriate, but the ultimate responsibility remains with the Board. The following main steps must take place in each appointment:
- Board Meeting
A quorate meeting of the Board of Directors will have to approve the issue of notices convening the members’ and creditors’ meetings required by statute to place the Company into CVL, nominate someone to act as chairman at the meeting of creditors and state which Directors are to verify a Statement of Affairs on behalf of the Company by completing a statement of truth.
We will provide standard minutes that include resolutions that, among other matters, will approve pre-appointment fees and appoint the Insolvency Practitioner to assist with the convening of the statutory meetings.
Notices have to be issued to members and creditors within statutory timescales convening meetings to wind-up the company voluntarily, appoint a Liquidator and (creditors only) authorise the payment of any outstanding pre-liquidation fees incurred in connection with preparing the Statement of Affairs and convening the meeting of creditors from the assets of the company.
- Statement of Affairs
The Directors nominated by the meeting will be required to prepare a Statement of Affairs on behalf of the company. We will assist you in preparing a draft statement of affairs from information that the Board provides, but it remains the Board’s statement, and those who verify the accuracy of its contents by completing a statement of truth will be ultimately responsible for any false disclosure or omission.
- Directors’ Report
The Director nominated to chair the meeting of creditors will be required to provide information for inclusion in a report to the meeting. Although we will assist in the drafting of the report, it remains your report and the nominated chairman may have to answer questions raised by creditors in response to any disclosure made in it.
- Creditors’ Meeting
Immediately after the members’ meeting the creditors will have the opportunity to confirm the Liquidators' appointment or replace them with their own nominee, appoint a Committee to assist the Liquidators and, if no Committee is appointed, approve any pre-liquidation fees not already paid, where they are to be paid from asset realisations in the liquidation.
- Post-appointment notices
After the meetings, the Liquidators are required to issue and advertise a variety of notices for the attention of the Registrar of Companies, the Secretary of State, other statutory bodies such as HM Revenue and Customs and the members and creditors generally.
Liquidation does not really provide an advantage when the flip side is your business will cease. It can be a worrying time with the pressures of company debt and making the ultimate decision to voluntarily wind-up your company or wait for a creditor to present a petition to wind up your company (Compulsory Liquidation).
It may be favourable though to initiate the process yourself and opt for a Voluntary Liquidation instead of being forced into the compulsory winding-up of your company.
You will be able to utilise your time to gather all the necessary information together and plan the best route for your company. If you were being faced with compulsory liquidation you will be subject to time frames forced upon you and open to potential misconduct accusations. A CVL can be a relatively quick process and a meeting of creditors can usually be convened within a few weeks. It can take months for a compulsory liquidation and this can be a worrying time while you are still at the mercy of your creditors.
With a voluntary liquidation you will decide who you wish to use as your nominated Liquidator. This does not happen when faced with compulsory winding up whereby an Official Receiver is appointed.
Within 3 months of the appointment of the Liquidator, they are required to investigate and file a conduct report on the director affairs taking into consideration how they ran the business. This is to address matters such as misconduct by way of wrongful trading. If you decide to voluntarily enter into a CVL you are able to receive guidance from your Insolvency Practitioner from the outset which will assist in working with you to be best prepared for potential allegations.
- Official Receiver
Under a Compulsory Liquidation, Directors will certainly face questions and will be interviewed by the Official Receiver.
- Acquiring Assets
With a Voluntary Liquidation, there is the potential to purchase the assets of the business. Directors who have an appetite to carry on the business inside a new company would sometimes wish to acquire these and start again.
With every advantage, there are some disadvantages.
- Liquidator Fees
As the director of the limited company appoints an Licensed Insolvency Practitioner to act as the proposed Liquidator, there will be a fee associated in carrying out the work. This can typically range from £4,000 to £8,000 taking into account the size of the job in hand and what needs to be carried out by the Liquidator.
- Moving forward
Although you have the option to purchase the assets from the company, starting again with a new company is always going to be tough. Sometimes the fact that your suppliers and contacts from the previous company may not wish to work with you again, there may be some damaged reputation that your previous business failed. For this reason, a CVL should only be sought as a last resort where the business has no viable chance of being rescued.
Your Liquidator has a duty to investigate the company and its Directors for wrongful trading and other forms of misconduct. If you are found to be guilty of wrongful or fraudulent trading you can be held personally liable for the company’s debts, or be subject to a fine. Directors can also be banned from acting as Directors for up to 15 years. It would be important to speak with an Insolvency Practitioner as soon as possible if you are worried about anything concerning these matters.
Clark Oliver have many years’ experience in dealing with company Directors, assisting them to preserve their business and achieve their objectives in the most efficient manner.