When you enter a liquidation process, things can feel quite stressful. However, with good advice and a high-quality insolvency practitioner, things can be made much easier. In this blog, we’re looking into post-liquidation: life after a CVL.
Liquidation procedures
There are various liquidation procedures that you might choose to use, and most of the time, the options available to you depend on your personal circumstances.
Before you enter a liquidation procedure, you need to ensure that you have all the proposed details in writing and that all aspects of your company have been thoroughly checked.
The most common form of liquidation is creditors’ voluntary liquidation (CVL). If you’re reading this blog, then it’s likely that your company has been closed through a CVL procedure.
Generally speaking, this process means that your company assets are sold, creditors are paid using money from assets, and the company is closed. Once closed, it will be removed from the Companies House register.
What happens after liquidation?
When the liquidation process is complete, the director’s conduct will be assessed. The liquidator, or insolvency practitioner, will need to check for wrongdoing. This may include selling assets undervalue, making preference payments, fraudulent trading or trading while insolvent.
Most directors face no issues as they do not commit these wrongdoings.
Some directors are, however, found guilty of these things and, therefore, are required to face the consequences. The exact consequences vary depending on the extent of the wrongdoing. Additionally, directors who leave their companies to enter compulsory liquidation are likely to face increased scrutiny.
If wrongdoing is uncovered, directors can be fined, disqualified from becoming a director again, personally liable for debts or even face prison sentences. It’s vital that you are honest if you are worried about potential wrongdoing being uncovered.
What happens to assets after liquidation?
When a company has debts, its remaining assets can be used to pay off creditors who are owed money. These creditors can be referred to as secured and unsecured.
The licensed insolvency practitioner will organise an independent valuation company to assess the assets and take care of selling them. This is also known as asset realisation.
If there are no assets to sell, the outstanding creditors risk being unpaid, even after the liquidation is complete. Directors should not sell assets to pay creditors before liquidation. If you do, you must keep all paperwork to show that the asset was sold for fair market value.
Assets are anything that the company owns, so they can include a wide variety of items, such as stock, property, cash, equipment and more. They can also include trademarks, copyrights and more.
Who can be paid using asset sale money?
As we mentioned previously, secured and unsecured creditors can be paid using the money made from asset sales. Additionally, employees can also receive this money to cover unpaid wages, holiday pay and sick pay. Some employees may be able to claim redundancy pay and some directors may be able to claim director redundancy pay.
- Secured creditors: Those who have a fixed charge on an asset or have a floating charge – read our blog on fixed vs floating charges.
- Unsecured creditors: Those who the insolvent company owes money to with no security, e.g.: HMRC, suppliers, contractors and customers.
What happens to my company records?
When you own a limited company in the UK, it’s vital that you keep good company records. These should include financial information and much more.
If wrongdoing is found, then you need to be ready to provide supporting evidence in your favour. If you cannot provide the evidence, you may face the consequences.
Generally, directors are advised to keep company records for six years after the liquidation process is completed. This can help to cover you if you are asked to provide information to HMRC. Find out how we can help with HMRC arrears.
Can my liquidated company be reinstated?
All companies can be reinstated, but the methods that can be used depend on how the company was closed in the first place. If you used a CVL, then the company can only be reinstated through the courts.
A company can be reinstated to pursue a claim or to regain access to the company’s assets. The request must be processed and the person requesting this must prepare a statement as to why they wish to reinstate the company.
What happens to a director’s credit score after a creditor’s voluntary liquidation?
In most cases, the directors’ credit score will be unaffected by the CVL. This is because the director using this method has a limited company. A limited company is a separate legal entity from its directors, which means they are typically not responsible for company debts.
Some instances where a director would be responsible for company debts are if they have signed a personal guarantee, committed wrongful trading or have an overdrawn directors’ loan account. All of these aspects must be checked before you enter a liquidation procedure.
Can I start a new company after a creditor’s voluntary liquidation (CVL)?
Providing that you did not commit any wrongdoing that led to director disqualification, yes you can open a new company after liquidation. There are some rules you will need to consider regarding the company name.
Additionally, you might want to be wary of opening a similar company to the previous one, as some creditors may be reluctant to work with you if they failed to receive payment when the first business closed.
If you do start a new company, creditors may be more likely to request security measures, such as personal guarantees.
A personal guarantee means that the company director will pay the creditor if the company cannot.
Signing personal guarantees is extremely risky and could be a problem if the company ends up in financial distress. Generally speaking, you’re better off avoiding personal guarantees.
We hope this blog has been helpful regarding life after a CVL. At 1st Business Rescue, we are always on hand to help company directors with confidential, honest advice. Contact our professional team today for personalised advice.
Justin Barker
I’m Justin Barker, the Managing Director at 1st Business Rescue. I have over 25 years of experience providing insolvency advice to business owners.
I understand how challenging it can be when dealing with financial difficulties within your business. It’s easy to ignore the problem and hope that it disappears, but this is often the worst thing you can do. Our dedicated team is here to provide honest, valuable advice to help UK directors deal with their personal situations in the most appropriate way.
No case or circumstance is the same, but I can guarantee that I am there to give you the best advice.
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