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Involuntary Liquidation
Involuntary Liquidation is not necessarily the last option.
A Creditors Voluntary Liquidation (CVL) may be the solution when your business is insolvent and is a better alternative to a forced liquidation by the courts.
Business Liquidation
There are two types of company liquidation – Voluntary and Compulsory Liquidation.
Compulsory liquidation is where the company is wound up by court action and should be avoided where possible. It would usually be a creditor of the business who has filed a winding up order to court.
The court has to decide whether to grant the winding up order.
Voluntary liquidation, as the name suggests, is voluntary. Whilst most voluntary liquidations are when the company cannot pay its creditors a voluntary liquidation can also be made for the owners of the business to realise the assets over a period of time, with no shortfall to any creditors .e.g retirement circumstances, please also see MVL (members voluntary liquidation).
When the directors feel that they cannot meet their obligations to creditors then this when you call in the liquidators.
Once a liquidator has been appointed the liquidators role is to obtain the best returns for the creditors.
The liquidator, operating on behalf of the creditors, is in full control of the company. The directors have at this point no further interest in the company, but obviously may be called upon to assist the liquidator.
The first major event to happen is a creditors meeting where the liquidator will provide an overview of the companies finances and the options available.
One of their first assessments is often to see if they can sell the business as a going concern.
Members of the previous company can make representations to purchase the assets of the liquidated business. Sometimes this may be the only offer on the table.
Liquidation may not be the end of your business in certain circumstances you may be able to buy back the assets needed to start again.
Directors do have legal responsibilities for the running of a company and the liquidator must look at the directors affairs in the business.
In the normal running of a business there is not a problem here but if for example the directors had, as examples, deliberately misled creditors, taken out funds unaccountably, failed to keep statutory records and filings, then the liquidator may pass details to the government Insolvency Service where further action against the director(s) may be taken.
Liquidation is not the only procedure available.
A CVA (Company Voluntary Agreement) is where an agreement can be made with creditors to allow trading to continue. Talk to us at EZY Debt Solutions before considering Liquidation.
Advantages of Voluntary Liquidation
The advantages of Creditors’ Voluntary Liquidation for companies in insolvency are:
Outstanding debts are written off
Being unable to repay existing debts with no way of turning the company around is a stressful situation for any director.
You cannot continue to trade if you are insolvent, and Creditors’ Voluntary Liquidation offers an escape route from this ‘no-win’ situation.
Unless personal guarantees have been made for company debts, as a director you have no legal liability to repay monies owed by the business.
The opportunity is there to move on and put your efforts into a new enterprise if you so wish, rather than investments being swallowed up by existing debts.
Legal action is halted
Any legal action against the company is stopped on liquidation, leaving you free to explore other business options without being pursued by creditors. Again, as long as you have no personal liability for a company debt, creditors will be unable to take action against you.
Staff can claim redundancy pay
If the liquidator continues to trade the business for a short period to help in the winding up, employee entitlements accruing during this period (on terms agreed with the liquidator) are paid out of available assets as a cost of the winding up and before other outstanding employee entitlements.
Members of staff made redundant by the Liquidator, can claim redundancy pay from the sale of company assets. If monies realised from the sale are not sufficient to cover redundancy payments, staff have an alternative route by which to claim what is owed.
The Fair Entitlements Guarantee (FEG) will operate in relation to claims for assistance for unpaid employee entitlements for all employer insolvency events.
Leases can be cancelled
Terms on lease and hire purchase agreements are generally terminated at the date of liquidation, meaning that no further payments need to be made. If any arrears are owed, the company leasing the goods may be able to claim from the insolvency practitioners along with other creditors.
Relatively low costs involved
Company directors will need to fund the costs of arranging a Statement of Affairs and holding a creditors’ meeting, but apart from those upfront costs there may be little to fund, as professional fees are paid from the sale of company assets.
You will need to hire a professional firm of insolvency practitioners to instigate both the Statement of Affairs and the creditors’ meeting.
Avoid court processes
By voluntarily choosing to liquidate the company, you can avoid being petitioned through the courts and be able to demonstrate to the public that liquidation was a company choice rather than a hostile creditor action.
If you think you need to undertake liquidation don’t ask your accountants to call in the liquidator yet. Get advice first, and fast. Call EZY Debt Solutions.