If you’re a director faced with creditor pressure, you may be researching voluntary insolvency.
In this article, we’ll explain how choosing insolvency, before it is forced upon you, can offer less restriction and a better result than waiting to be forced into liquidation.
Why Choose Voluntary Insolvency?
If your company is insolvent, or will be very soon, you’re in a tough situation. Perhaps you already have angry letters from creditors, or HMRC, piling up on the doormat.
In this situation, waiting or burying your head in the sand is the worst thing you can do. Rather, choosing voluntary insolvency is a way to stare the situation in the face, receive professional advice on consequences, and then begin the journey towards closing the company down.
Choosing voluntary insolvency, known as a creditors voluntary liquidation (CVL) will mean instantly stopping creditor pressure. The appointed insolvency practitioner will notify all creditors as to the situation, aswell as taking over all communication with them.
As director, your powers will cease. That does not stop you taking employment or becoming a director of another company. One restriction does bite, and it catches people who do not expect it: under section 216 of the Insolvency Act 1986 you cannot, for five years, be involved in a company that uses a name by which the liquidated company was known, unless one of the three statutory exceptions applies. Breaching it is a criminal offence and makes you personally liable for the new company’s debts. Take advice before you reuse a trading name.
What’s the Process of Voluntary Liquidation?
- Directors Board Meeting is called with the intention of scheduling a shareholder meeting to announce the decision to liquidate.
- Shareholders and creditors are notified. The directors prepare a Statement of Affairs, usually with the Insolvency Practitioner’s help, which summarises the company position, including the expected timeframe moving forward.
- Liquidation Begins – Assuming the shareholders pass the resolution, which needs at least 75 per cent of the votes cast, the liquidation will begin. In this process, it’s the IP’s job to gather and sell company assets prior to repaying creditors all or a proportion of their debts.
- Directors Investigations – Part of the IP’s job is to investigate the actions of directors in the period running up to insolvency for wrongful or fraudulent trading.
- Dissolution – Once the money has been distributed and the liquidator’s final account is registered at Companies House, the company is automatically dissolved three months later, meaning it no longer exists.
Advantages of Voluntary Liquidation
- You can avoid a public court case with creditors
- You nominate the insolvency practitioner, rather than having the official receiver take office automatically. The creditors decide, and can appoint someone else, but most nominations are unopposed
- You act rather than wait, which is what a later review of your conduct looks at. The investigation itself is no lighter in a voluntary liquidation — the liquidator’s duty to examine the directors and report is the same either way
- You can show your customers that you chose to liquidate voluntarily rather than being forced into it
- Above all it’s a quick and easy way to close down your company and put an end to creditor pressure
How Long Does it Take?
There’s no fixed timetable for putting the company into voluntary liquidation — it depends on how quickly the board and shareholders act, the notice periods involved, and the creditor decision procedure used. How long it takes to complete the entire process will then depend on the complexity of the assets which need to be sold.