Three month IVA payments holiday and more coronavirus advice30th April 2020
Coronavirus Bill Protects Companies Against Insolvency22nd May 2020
The coronavirus outbreak has far-reaching consequences not just for the nation’s health but also on the health of businesses.
Social distancing measures and the associated economic downturn has already led to some businesses shuttering their doors for good and many small, medium and large businesses are likely to follow suit in the coming weeks and months.
If your business has outstanding debts that it can’t afford to pay it is insolvent and may need to be liquidated.
Liquidating is a big decision for any company director to make, but it may help you avoid more pain and bigger problems in the future. Any company owner that thinks they may be approaching this situation needs to seek professional advice as soon as possible.
A licensed insolvency practitioner will be able to offer reliable, independent advice on your best course of action.
Pursuing a Creditor’s Voluntary Liquidation (CVL)
For many insolvent companies, a Creditor’s Voluntary Liquidation (CVL) will be the best course of action. If the business is loss-making with no prospect of recovery then continuing to trade the business increases the chances of the director being held personally liable for ongoing losses.
If a company is insolvent and creditors agree to pass a winding-up resolution, a licensed insolvency practitioner will effectively take control of a company and its assets. The insolvency practitioner will then take steps either to repay creditors or distribute funds to shareholders.
A CVL differs from a compulsory liquidation because it is initiated by the company directors and shareholders. Under a compulsory liquidation, creditors will petition a court to close the business so that they can realise any debts owed to them.
Managing a successful CVL
A CVL must follow a set process. Once an insolvency practitioner has recommended pursuing a CVL, you must complete a number of actions.
The first is to convene a board meeting where company director formally agree that a company is insolvent and can’t continue trading. Directors will also appoint their choice of insolvency practitioner who will take charge of the liquidation and supply them with certain documents. These include:
- Identification for each director and key shareholders
- Questionnaires supplied by the insolvency practitioner
- A list of creditors and amounts owed
- A list of employees that have been made redundant
- Copies of the last three years of accounts, if applicable
After a board meeting, the company must also schedule a members meeting where any shareholders can approve the insolvency. At this point the company will formally be in liquidation.
Creditors will then be called upon to ratify the appointment of the liquidator. This can usually be done via a conference call, unless 10% of the creditors by debt value or number want to hold a face-to-face meeting.
Tom Fox, Licensed Insolvency Practitioner at Umbrella Insolvency, said: “For companies facing financial difficulty, the most important thing is that you seek help as soon as possible. Professional advice will help you avoid some of the most common pitfalls of insolvency, like making preferential payments and other errors that can land you in very hot water.”
To learn more about company insolvency, speak to a member of the team today. Call: 0800 611 8888.