A guide to company voluntary liquidation
If your business is suffering financially, you may be worrying about what’s next and how to deal with it. The good news is that you may have a variety of options available depending on your personal circumstances. It’s important to try not to worry and establish the facts early so that you can find the best solution. For some business owners, a company voluntary liquidation is a good option.
What is voluntary liquidation?
A company/creditors voluntary liquidation (CVL) is essentially a self imposed company liquidation. To enter this liquidation process, a company must be insolvent.
The key to this type of liquidation is that as a company director you have the choice to close the company. In contrast a compulsory liquidation is when a winding up petition is issued by court order.
If you’re worried about your company’s situation, you should seek advice before it gets too late. A winding up petition will make your company closure harder and could mean you’re accused of wrongful trading.
You may have also come across a member’s voluntary liquidation (MVL). This can be used by a solvent company. Directors must confirm that the company is able to pay off all debts by a stipulated deadline.
There is lots to consider before you make the decision to enter this form of liquidation. A liquidation involves the closure of your company, usually due to financial difficulties, therefore it is used by company directors running an insolvent company.
How do I know if my limited company is insolvent?
An insolvent business can be described as a business struggling to pay off its debts. These debts can include HMRC arrears, bounce back loans and being unable to pay suppliers for products or services that you have received.
In simple terms, if your liabilities are more than your assets then it’s quite likely that your business is insolvent. Before you decide to liquidate, you should make note of outstanding creditors and your overall financial position.
When it comes to liquidating an insolvent company, you have to be aware of your director responsibilities. One important responsibility you have is to seek advice as early as you can, this will have a positive effect later down the line when it comes to your business being assessed.
Deciding to liquidate the company is also an example of following director responsibilities as it shows that you are taking steps to help the situation.
What are my director responsibilities when entering a creditors voluntary liquidation (CVL)?
- Seek advice early
- Place company into liquidation if it is deemed insolvent
- Select an insolvency practitioner
- Attend a creditors meeting
- Cooperate with the liquidator/insolvency practitioner
- Provide necessary information upon request, particularly financial information
As a company director, your actions will be considered thoroughly when entering company liquidation so it is important that you cooperate throughout the process to ensure the most appropriate outcome.
How to liquidate a company
After you have gained advice from a trusted source, they will explain the whole process of going into liquidation. Your first job is to speak to a number of licensed insolvency practitioners, as they will be in charge of closing the company and attempting to pay back debts.
This means you need to make sure you select the best practitioner for your specific situation. It goes without saying that you don’t want to always consider the cheapest option or even the most expensive to get the job done properly.
The formal insolvency procedure will be explained in detail, so don’t worry if there’s areas you’re not sure about. In any liquidation, your business will be taken off the register at Companies House.
Licensed insolvency practitioner
When you are consulting with licensed insolvency practitioners, you will need to get all offers in writing to ensure that you have a record to refer back to should you ever need it.
The role of an insolvency practitioner is to assess your situation and try to find ways to pay back some of your creditors. After you have selected a licensed insolvency practitioner to work with, they will write to your creditors and invite them to a creditors meeting.
You will also lose director responsibilities after the appointment of a practitioner.
What happens at a creditors meeting during liquidation?
Your creditors meeting may take place over the phone for ease and it is important that you attend. A number of topics will be covered at the meeting, including a statement of affairs and anything subject to investigation.
Questions will be invited and usually the meeting will take 40 minutes or more, depending on the complexity of the case. Questions may be centred around your directors conduct, therefore it is important that you are honest to ensure the best outcome.
After the meeting, the company will officially be placed into liquidation. This means that the company will be unable to trade. It also means that any unsecured debts will officially be written off.
This is due to debts being linked to your business rather than you personally. Providing you have acted responsibly, when liquidating a company, your bounce back loan will also be written off. If you used your bounce back loan for your own personal benefit, it will not be written off and you should seek advice.
How long does it take to liquidate a company?
There is no straightforward answer to this question. How long it takes to liquidate a company depends on a number of factors such as the way that you choose to liquidate the company and the cooperation of yourself and creditors.
On average, it takes between 6 and 24 months to complete the liquidation process. Time frames can also be different when entering a compulsory liquidation.
How much does it cost to liquidate a company?
Similarly to how long the liquidation process takes, it is difficult to estimate the cost of company liquidation because every case is different. For a small liquidation with minimal creditors and company assets the average cost is between £3000 and £6000, plus VAT.
The company entering a creditors voluntary liquidation is responsible for paying the liquidation costs. These fees are often paid for using money from sold assets. If you are unable to find the money from company assets, the fees will be the responsibility of the company’s directors.
It is important to remember that you may be held personally liable for company debts, so you should be aware of your financial position.
Voluntary liquidation of company process
A huge benefit of choosing to use a voluntary liquidation model is that your insolvency practitioner will handle all communications with creditors, HMRC and banks, relieving you of some stress.
If you’ve chosen to place your company into voluntary liquidation, your licensed insolvency practitioner will expect you to provide all of the relevant information regarding your company.
When they gain access to this information, they will begin scrutinising your actions and trading history from up to 3 years before you filed for liquidation.
The practitioner will be looking for evidence of wrongful trading and any large transactions that have left the account. Wrongful trading can include preference payments and selling assets for a lower value than they are worth.
You may also be accused of wrongful trading if you continue operating despite being unable to pay creditors.
If you are found to have committed wrongdoings then it’s likely that the practitioner will take action, as you have acted outside of your director’s responsibilities.
They will also look into the company’s assets, which can include cash in the bank, stock, machinery and more. If possible, they will aim to sell these assets to gather money for both your secured creditors and unsecured creditors. If there are no assets, your creditors will be left with nothing.
Can you liquidate a company and start again?
Providing that you have not committed any wrongdoing within a previous company, generally you can liquidate a limited company and start again as a director. However, there are restrictions in place regarding the name of the business. It must not be the same or too similar to the previous company name.
There are some exceptions for using the same or a similar name for the new business, which will need to be assessed. You will also need to look into any director redundancy payments you may be eligible for.
At 1st Business Rescue, we offer honest, accurate, expert advice and would encourage anyone who is debating the voluntary liquidation of a company to seek advice early.
We ensure that if there is a chance any issues could arise from your situation, you are aware of them and we also offer immediate support.
If you need liquidation advice, whether it’s voluntary, compulsory liquidation or even a member’s voluntary liquidation, we’re here for you.
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.
We are one of the only 5-star corporate insolvency companies on Trustpilot, with hundreds of 5-star reviews. Contact our friendly team for insolvency advice.