Creditors Voluntary Liquidation

Creditors Voluntary Liquidations are the most common procedure used by insolvent companies. In 2023 alone they accounted for 80.9% of all UK corporate insolvencies.

Why is it this the preferred method of closing a business by four in five directors? 

Most simply, it gives directors of insolvent companies an efficient way to close the business and retain elements of control. It ensures creditors are repaid as far as possible and that their legal obligations are fulfilled. 

A CVL also provides other benefits such as legal protections and the most valuable aspect of all – time. 

If one of your clients is considering a CVL procedure then you can decide how involved you wish to be.  

A company can be placed into liquidation in as little as two weeks and the insolvency practitioner would assume dealing with creditors from the very start of the process, alleviating pressure on them. 

You can work directly with them or you can liaise with us or a combination of both of these approaches.

Any work you do to facilitate the preparation of the statement of affairs and filing tax returns, as long as its agreed in advance, can be paid for as an expense of liquidation.

Companies can be placed into voluntary liquidation in as little as two weeks and we’ll take over dealing with the creditors from the very start of the process.

As a creditors voluntary liquidation is a formal legal process it has to be carried out by a licensed insolvency practitioner (IP). 

Insolvency law also puts certain time and legal obligations for the company and the acting IP. 

Stage 1 – Initial company liquidation advice meeting (cost free) Timeline: Same day

This is the first official contact meeting between the insolvency practitioner and the company. This can be either online or face-to-face depending on their preference. 

At least one company director has to be present to explain the company’s financial situation. After this conversation, we can give them an initial outline of the various options that could be available to them and send them a summary of the discussion.

Stage 2 – Review information and advice. Timeline: one to 14 days

We provide a review of all the information provided by the directors and based on this provide our professional advice and opinion on all feasible and available options, not just a CVL. 

At this stage we provide our fee quote and terms of business for review. We also discuss in more detail how any company assets should be dealt with including options to purchase along with any other company specific details such as personal guarantees, directors loans, contracts and leases.

Stage 3 – Instruction and convening creditors meeting. Timeline – one to three days

If the client wants to go ahead and they agree with our terms, they will formally instruct us. 

We’ll then arrange meetings for shareholders and creditors which will usually take place between nine and 21 days after formal instruction is received.

Stage 4 – Shareholders and Creditors meetings. Timeline – 9 to 21 days

Both meetings will be held remotely with the shareholders meeting taking place first. One of the directors is required to attend each meeting by video link.

The meetings usually last between 30 and 90 minutes with any questions from creditors being put forward during the meeting.  After the meetings are concluded then the company can legally be placed into liquidation. 

Stage 5 – Post liquidation assistance and closure. Timeline – varies but usually between 9 and 12 months

The client’s books and records are moved to the liquidator’s office to ensure that all assets are properly realised. Directors are required to complete a questionnaire based on their knowledge and experience of critical decisions taken that led to the situation as mandated by the Insolvency Service. 

Once we’re satisfied that there are no outstanding matters the liquidation is closed. Three months from this date, the company is removed from the Companies House register and formally dissolved.

Creditor meetings are held remotely meaning directors and other attendees can join via telephone or online video. Between nine and 21 days notice is given for them so shareholders and creditors have sufficient notification to attend either meeting. 

Both are held consecutively on the same day with the shareholders meeting taking place first. 

Shareholders Meeting 

Contrary to popular belief, the shareholders of a business decide whether it is placed into liquidation, not creditors so this raises its importance. 

The format of the meeting is as follows:-

• A statement of affairs and the director’s report are laid before the attendees
• A formal resolution will be passed for the company to be placed into liquidation
• The shareholders will nominate a liquidator to be appointed to oversee the process

Once the meeting is concluded the company is placed into liquidation and the creditors meeting follows on straight afterwards

Creditors Meeting

Depending on the number of creditors that want to attend the meeting could take place as a telephone call or meeting between directors and the liquidator (if no creditors are present); a conference call if a small number of creditors are in attendance or conferencing software if a large number of creditors are in attendance. 

If there are a large number of creditors then they would have the right to request a physical meeting that would take place at the company’s registered or trading office; the liquidators office or a convenient conference facility if there are a very large number of creditors but all of these scenarios are very rare. 

Meetings usually last between 30 and 40 minutes but this could increase if there are any complicated issues that arise in discussion.

A director will chair the meeting but the appointed liquidator will conduct the meeting on their behalf. 

The format of the meeting will be as follows: 

• Any prior relationships between the liquidator and the company are disclosed
• A statement of affairs and the director’s report are laid before the attendees
• Creditors are invited to ask the directors questions (see section below)
• Creditors will be invited to highlight anything they would like the liquidator to investigate
• The creditors may offer alternative nominations for liquidator or may decide to form a liquidation committee
• If no committee is formed, resolutions may be passed to agree the liquidator’s remuneration

Creditors questions

Regarding these, questions must be topical and linked to the company being placed in liquidation. Directors should attempt to answer these professionally and answer any valid points raised.

The liquidator will intervene if the questions deviate from the matter or become inappropriate. Any threats or bad language are grounds for immediate ejection from the meeting.

Creditors can choose to have a solicitor or insolvency practitioner attend the meeting to raise questions on their behalf. Likewise directors may have a solicitor present to advise them in relation to the answers they give.  

In practical terms, insolvency practitioners will guide the meetings so that there is a fair balance reached between directors and creditors concerns. 

Investigations

A liquidator is legally required by the Insolvency Service to investigate the actions of the directors of a company prior to liquidation.  As part of this process, the liquidator will ask the creditors if there are any matters they would like to raise for investigation. 

Most of their concerns will have a straightforward explanation but if there are any actions they or you are concerned about then you should raise it as soon as possible.

Liquidator nominations

Creditors have the right to nominate their own choice for liquidator at the meeting instead of the shareholders’ choice. Although rare, there are several reasons why this may happen. 

They may have a contractual agreement to do so in exchange for representation at the meeting; They may believe their choice of liquidator has a particular area of expertise to increase asset realisations or they may simply believe their chosen liquidator may be more objective.

The chosen liquidator is the one who receives more than 50% of the vote of creditors at the meeting. 

Liquidation Committee

If creditors vote in favour of a committee by a simple majority, the liquidator must canvass creditors as to whether they wish to be members of the liquidation committee. A committee must consist of at least three creditors and no more than five creditors.

Its purpose is to represent the creditors interests as a whole; approve the liquidators fees and act as a sounding board for the liquidator on any contentious matters.

If a committee is formed then the meeting will end.

If no committee is formed, the basis of post-liquidation fees will be established at this stage. 

Please note that directors are not liable for these. They are payable out of any assets that are realised within the liquidation. If no further assets are realised, no further fees are drawn regardless of the resolution passed. 

Meeting closure

Once all of the above resolutions and issues have been dealt with satisfactorily, the meeting will be formally closed. 

The chair has to sign all of the meeting documents at this stage or if held remotely, immediately provide the documents signed to the liquidators office.

However, if you have any questions, contact one of our expert advisors directly.

If your clients are one of the thousands of UK businesses issued with a winding up petition, it may well be that they’re unable to see how their business can survive, and are perhaps considering letting your company be wound up.

Or they may have received a winding-up petition and want to know their options?

Allowing a company to be wound up without first seeking advice is likely to prove very costly at some point.

This brief guide through the voluntary liquidation vs compulsory liquidation will help plan the next steps.

Court Process

The first and main benefit of voluntary liquidation is that it gives directors time to talk with the insolvency practice of their choice. They can take advice and firm up answers to some of the issues that may be on their mind.

We’ve listed below a few of the most common concerns or problems that directors face at this time, which are often much better dealt with in a well organised voluntary liquidation:

• Personal Guarantees: when the company goes into liquidation, any personal guarantees given will ‘crystallise’ or become payable; ideally a preemptive plan will be in place to deal with this.
• Director’s redundancy claims: if directors have been on the company’s payroll, they may be entitled to make a claim for directors’ redundancy.  This could be crucial income at a time when they most need it.
• Director’s loan accounts: the liquidator will look to recover any funds owing from an overdrawn director’s loan account.
• Director’s conduct advice: the liquidators’ investigation into the conduct of company directors is a mandatory aspect of liquidation.
• Redundancy process or transfer of existing staff to a new business.
• Sale of assets.
• Transfer of leases.

As voluntary liquidation is a paid service that we provide, you won’t be too surprised when we say it is normally a better option! However, in terms of making them better prepared and able to cope with what liquidation will throw at them, voluntary liquidation is a much more controlled solution.

It also gives directors the chance to find out any other information or options they might not be aware of. This means that they can plan for what liquidation will entail, rather than having the choices of the Official Receiver forced upon them.

Next Steps

When a company is wound up by HMRC or anyone else, once the Official Receiver is officially appointed, the liquidation process begins.  However, even if a petition has been issued, directors can still apply for voluntary liquidation at any time prior to the court hearing date.

If they’re worried about the costs of voluntary liquidation, they can use our liquidation fee calculator to get a quote for what voluntary liquidation might cost.

Alternatively, they can use our booking system to arrange a meeting or to contact one of our business rescue experts directly.

Prohibited names

We’re frequently asked about reusing company names after liquidation by accountants on behalf of clients who are keen to reuse them. 

We’ll take a little time to explain what the legality is and how your client could proceed. 

Prohibitions were put in place on reusing liquidated company’s names in order to address the problem of “phoenixing”.

This is where a company runs up debts, enters liquidations and then a new company is set up to continue trading without the previous debt while for the outside world nothing has changed. 

In order to counteract phoenixing, for five years following a liquidation, no director (or shadow director) of the previous business can be a director or or take part in the formation, promotion or management of a company or business with a prohibited name, either directly or indirectly. 

What is a prohibited name?

A prohibited name is one that a company in liquidation has been known by in the previous 12 months before the formal date of liquidation. This also includes any name similar enough to appear that there is any link with the company in liquidation. This applies to both registered names and trading names. 

Consequences

Using a prohibited name is actually a criminal offence so offenders could be liable to imprisonment, a fine or both. They could also be held to be personally liable for the debts of any new company using the prohibited name. 

Anybody who agrees to be a director of a company using a prohibited name; managing such a business or acting on the instructions of someone they are aware is contravening laws against phoenixing can also be held liable too. 

Exceptions

The Insolvency (England and Wales) Rules 2016 allow three instances in which an otherwise prohibited name can be reused. These are:

• Purchase – if a new company purchases the whole, or substantially the whole of the business in liquidation then a similar name may be used. In addition, notice of the purchase must be sent to all known creditors of the insolvent company, and it must be advertised in the London Gazette within 28 days of the sale being completed
• Court permission: the new company can make an application to the court within seven days of the liquidation. The name can be used until the earlier of six weeks following the liquidation, or until the court has heard the application
• Existing use: If a company has been trading and using what would otherwise be a prohibited name continuously for a minimum of 12 months leading up to the liquidation then the rules allow this name to continue being used.

Every case and meeting is unique but hopefully this guide has given you an overview of what your clients could expect at every stage of the process.