Usually, a company enters a CVL after its directors realise that its liabilities exceed its assets or it cannot pay its debts as and when they fall due and therefore the company cannot continue its business.
The procedure is set out in the Insolvency Act 1986 (IA 1986) and the Insolvency Rules 1986 (SI 1986/1925) (IR 1986).
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.
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. The statement is sent to creditors in advance of the deemed consent procedure or the virtual meeting and is lodged at Companies House.
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.
A meeting of shareholders is then held pursuant to section 84 of the Insolvency Act 1986. The meeting considers a special resolution that the company cannot, by reason of its liabilities exceeding its assets, continue its business and that it is advisable to wind up. The special resolution requires a majority of 75% of those present and voting in person or by proxy. The shareholders also nominate a liquidator. This requires an ordinary resolution passed by a simple majority of more than 50% of those present and voting.
Where there is a holder of a qualifying floating charge, before a company passes a resolution for voluntary winding up, it must receive notice of 5 working days.
The creditors are then given the opportunity to consider the appointment of an insolvency practitioner either by deemed consent procedure or by holding a virtual meeting of creditors. Depending on which process may be appropriate detailed below is the procedure for both:
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.
Payment for this work is made from the company’s assets if funds permit. If no funds are available the directors, or a third party would be expected to pay these costs.
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. A CVL can be a relatively quick process and a decision process 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 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.
4. Official Receiver
Under a compulsory liquidation Directors will certainly face questions and will be interviewed by the Official Receiver.
5. 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.
1. Liquidator Fees
As the director of the Limited company appoints a 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 £3,000 to £8,000 taking into account the size of the job in hand and what needs to be carried out by the liquidator.
2. Moving Forward
Although you may 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 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.
If you wish to discuss any of the advice detailed above or any other aspect of the liquidation process please do not hesitate to contact us now for a free confidential and no obligation conversation.