Corporate Insolvency

A Creditors Voluntary Liquidation (CVL) is initiated by the directors of a company who, having reached the conclusion that the company is insolvent and cannot be rescued, decide to call meetings of shareholders and creditors to place the company into liquidation. It is usual for the directors to appoint a Licensed Insolvency Practitioner to assist with the procedures in compliance with the Insolvency Rules.

The Liquidator is not formally appointed until the shareholders have passed a resolution to place the company into liquidation and confirm the appointment of the liquidator. The creditors will have the opportunity to either confirm that appointment or reject it through the insolvency procedures utilized by the Insolvency Practitioner engaged by the Directors.

Following the Liquidator’s appointment, it is their duty to realise the assets of the company, investigate its affairs, and report to the Insolvency Service on the conduct of the directors. They also need to agree on creditors’ claims and distribute the proceeds to the creditors in the order of priority laid down in the Insolvency Rules.

Liquidators of insolvent companies have a wide range of powers to assist them in both tracing assets and investigating the company.

Company Voluntary Arrangements (CVAs) are frequently used by directors who believe their company has a viable future and are prepared to work hard to keep it alive.

A CVA enables the company to reduce its debt levels and improve its cash flow by coming to an arrangement with creditors. Typically, the company will make only one agreed, affordable monthly payment to the appointed insolvency practitioner. The practitioner then acts as a supervisor, distributing the money on a pro-rata basis among the creditors included in the CVA. The amount paid over the agreed term (which can be up to five years) can vary, from full repayment to an agreed percentage of the debt.

CVAs are an excellent way to solve serious debt problems, and in sixty months or less, the company can be declared legally debt-free. There will be a write-off of any outstanding debt once the CVA has been successfully completed.

A Members Voluntary Liquidation (MVL) procedure is used when the company is solvent. A company is solvent if, by definition, it has sufficient assets to settle all liabilities in full, plus any statutory interest, within a given period of fewer than 12 months. Although the process relates to solvent companies, it must be managed by a licensed insolvency practitioner. The directors’ decision to instigate an MVL is generally because the company has no further purpose and it is a tax-efficient way of distributing its assets and profits to the shareholders. Companies with more than £25,000 of cash to release may qualify for Entrepreneurs’ Relief if specific criteria are met. The assets are sold, and the proceeds are used to pay creditors in full, as well as the liquidator’s fees. Any remaining funds are then distributed to the shareholders.

If your company is solvent, an MVL can also be used to distribute cash, liquid, or physical assets among shareholders via the MVL procedure, wherein directors’ obligations are removed.

To qualify for Entrepreneurs’ Relief, a company must first be able to settle all its liabilities. Afterward, the usual limit on distributions can be treated as a capital distribution rather than a dividend.

Bhardwaj Limited does not provide tax advice, as individuals and companies may have varying tax circumstances. It is recommended that you seek advice from your accountant or tax specialist regarding closing your company using the MVL process or qualifying for Entrepreneurs’ Relief before making any decisions.

Compulsory Liquidation is the most serious insolvency procedure that an insolvent company may face. It occurs when a creditor owed £750 or more issues a winding-up petition against the company, and a winding-up order is subsequently issued by the courts. The courts then appoint a liquidator to initiate the liquidation process.

Once the winding-up order has been issued, and a liquidator appointed, there is very little that can be done to save the company. Therefore, it is vitally important to contact Bhardwaj Limited if a creditor has threatened to issue a winding-up petition or if one has already been issued. It is crucial to act promptly while there is still time to consider other options.