If you’re a director faced with creditor pressure, you may be researching voluntary insolvency.
In this article, we’ll explain how choosing insolvency, before it is forced upon you, can offer less restriction and a better result than waiting to be forced into liquidation.
Why Choose Voluntary Insolvency?
If your company is insolvent, or will be very soon, you’re in a tough situation. Perhaps you already have angry letters from creditors, or HMRC, piling up on the doormat.
In this situation, waiting or burying your head in the sand is the worst thing you can do. Rather, choosing voluntary insolvency is a way to stare the situation in the face, receive professional advice on consequences, and then begin the journey towards closing the company down.
Choosing voluntary insolvency, known as a creditors voluntary liquidation (CVL) will mean instantly stopping creditor pressure. The appointed insolvency practitioner will notify all creditors as to the situation, aswell as taking over all communication with them.
As director, your powers will cease, but this will not prohibit you from seeking employment, or becoming the director of another company.
What’s the Process of Voluntary Liquidation?
- Directors Board Meeting is called with the intention of scheduling a shareholder meeting to announce the decision to liquidate.
- Shareholders and creditors are notified. The Insolvency Practititioner prepares a Statement of Affairs which summarises the company position, including the expected timeframe moving forward.
- Liquidation Begins – Assuming at least 75% shareholders agree, the liquidation will begin. In this process, it’s the IP’s job to gather and sell company assets prior to repaying creditors all or a proportion of their debts.
- Directors Investigations – Part of the IP’s job is to investigate the actions of directors in the period running up to insolvency for wrongful or fraudulent trading.
- Strike Off – Once the money has been distributed, the company is struck off the register at companies house meaning it no longer exists.
Advantages of Voluntary Liquidation
- You can avoid a public court case with creditors
- You can appoint an IP of your choice, rather than having once forced upon you
- Less scrutiny over the insolvent company’s behaviour in a voluntary process
- You can show your customers that you chose to liquidate voluntarily rather than being forced into it
- Above all it’s a quick and easy way to close down your company and put an end to creditor pressure
How Long Does it Take?
Actually putting the company into voluntary liquidation takes around 14 days. How long it will take to complete the entire process will depend on the complexity of the assets which need to be sold.