Our professionals in company insolvency and business rescue have many years’ experience using a range of tools to get businesses back on track or wind them up, Creditors’ Voluntary Liquidation (CVL) for serious company debt issues where there is no other viable alternative.
There are many reasons why a business might have to stop trading but we recognise that most businesses that fail do so honestly. Whatever the circumstances of your business coming to an end, The UK Company Insolvency Helpline’s experienced insolvency advice team can help.
If the business or company is solvent, we may recommend the directors’s resolve matters efficiently and cost-effectively with a tax efficient members’ voluntary liquidation.
If, however, you are insolvent you may need a creditors’ voluntary liquidation. Whichever it is, we will guide you throughout the liquidation process. Creditors’ Voluntary Liquidation (CVL)
Creditors’ Voluntary Liquidation
When directors reach the decision that their company is insolvent and can no longer continue to trade, an Insolvency Practitioner is consulted who agrees to assist the directors to put the company into Creditors’ Voluntary Liquidation.
A directors’ board meeting is held and the board passes a number of resolutions including agreeing a date when a meeting of the company’s shareholders will be held and also a date when a meeting of the company’s creditors will be held, which usually immediately follows the shareholders’ meeting.
Notices calling the meetings are sent to all shareholders and creditors and the creditors’ meeting must be advertised. At this point the company usually ceases to trade and the employees are made redundant but this may not necessarily be the case and the company may continue to trade up to the date when the shareholders’ and creditors’ meetings are held. Remember, the date of the board meeting is not the date of liquidation.
Between holding the board meeting and holding the shareholders’ and creditors’ meetings, the Insolvency Practitioner will work with the directors to prepare a pack of information that will be presented to the shareholders and the creditors, which will include a statement of affairs showing the company’s asset values and its liabilities.
At the shareholder meeting the shareholders pass a resolution putting the company into liquidation and pass a second resolution appointing a liquidator. The company is now in liquidation and the directors’ powers cease.
At the subsequent creditors’ meeting, at which the directors must be present, creditors attending the meeting are able to ask questions to try to understand what has happened. After all questions have been asked creditors can either vote for the shareholders’ nominated liquidator to stay in office or to appoint another liquidator. The vote is based upon the value of debt of the creditors attending the meeting.
The liquidator will now control the company and its affairs and realise its assets for the benefit of creditors.
The Creditors’ Voluntary Liquidation ( CVL) Procedure
There are 3 meetings required to place a company into Creditors’ Voluntary Liquidation and the directors should consult a firm of insolvency practitioners to advise and assist them through the process.
The 3 meetings are:
A board meeting is held where the board of directors resolve that the company is unable to meet its liabilities as they fall due and it is advisable to wind up the company’s affairs. Accordingly a General Meeting (GM) must be called for the members of the company to consider the conclusions reached by the directors and agree that it is advisable to wind up the company via a creditor’s voluntary liquidation. A meeting of the company’s creditors is also called in order that the creditors may vote on their choice of liquidator and question the directors on the reasons for failure of the company.
A director will be nominated to chair the meeting of members and creditors and verify the statement of affairs − a statement listing the assets and liabilities of the company to be drawn up to a date not more than 14 days before the members meeting.
The date for the meeting of members will be at least 16 days from the date of the board meeting as members must be given 14 days notice for an GM where an special resolution is to be proposed in accordance with the Companies Act 1985. This time limit can be shortened with the written consent of at least 95% of shareholders.
The date for the meeting of creditors must be within 14 days of the meeting of members. It is normal practice to hold the meeting of creditors immediately after the meeting of members.
The insolvency practitioner will draft and provide the necessary board minutes for the meeting of the board of directors and also prepare the required notices to members and creditors in order to convene the required meetings to place the company into liquidation.
The members meeting will consider the conclusions reached by the directors at the board meeting and review the statement of affairs. If they then consider it appropriate, they will pass a special resolution to wind up the company. An ordinary resolution will then be passed appointing a liquidator. The liquidator will, in most circumstances, be an insolvency practitioner from the firm who were instructed to assist the directors in placing the company into voluntary liquidation. Shareholders are able to nominate a different liquidator. If this happens a simple majority vote will decide who is appointed.
Meeting of creditors
The creditors’ meeting is held primarily to enable creditors to ratify the appointment of the liquidator of the company, but it also allows creditors the opportunity to question the directors about any aspect of the company and bring to the attention of the liquidator information that he may find useful in carrying out his duties. The directors present a report detailing the history of the company together with other pertinent information. The statement of affairs is also made available to creditors.
The director nominated to chair the meeting of creditors at the initial board meeting must do so under Section 99 of the Insolvency Act or the director is liable to prosecution and a fine of up to £5,000 but in practice it is normally the nominated Liquidator that conducts the meeting.
Preparation of document required for the meetings of creditors
The insolvency practitioner will either assist you in preparing the statement of affairs from the information provided to us or instruct a third party to prepare this on your behalf. The directors will be responsible for the contents of the statement of affairs and failure to provide us with the required information to allow the documents to be prepared; will result in no statement of affairs being presented.
Creditors Voluntary Liquidation Frequently Asked Questions (FAQ)
What are the most common questions asked by company directors about the topic of creditors voluntary liquidation – which are always covered in the first consultation?
What criminal proceedings may be taken?
The liquidator is required to report any evidence of possible criminal offences that are uncovered while investigating a company’s affairs. A decision is then taken on whether the matter should be referred to the prosecuting authorities to consider proceedings.
Examples of possible offences are:
The court may also make a disqualification order on the conviction of a director for a criminal offence in connection with the management of a company.
What is disqualification of unfit directors of insolvent companies
A disqualification order is made by the court under the Company Directors Disqualification Act 1986. The Act applies not only to a person who has been formally appointed as a director but also to those people who have carried out the functions of a director and to shadow directors. Without specific permission of the court, it disqualifies a person from:
An order for disqualification can be made under a number of different sections of the Company Directors Disqualification Act 1986 (see also section 4 – Criminal proceedings). The order will specify the period of disqualification. For orders made against an unfit director of an insolvent company, there is a minimum period of 2 years and a maximum of 15 years.
When can disqualification occur?
The liquidator has to send the secretary of state a report on the conduct of all directors who were in office in the last 3 years of the company’s trading. The secretary of state has to decide whether it is in the public interest to seek a disqualification order. Any application is heard and decided by the court.
What happens after an application for disqualification is made?
The Insolvency Service will make a report on the conduct of the directors which will normally be supported by a statement of truth by the liquidator and other people (such as the company’s bankers, accountants and creditors) and presented as evidence to support the case made against the directors. The directors will have the opportunity to give the court explains or reasons for their actions by a statement of truth which may be supported by other people. The court will then decide whether the conduct makes the directors unfit to act in the management of a company and, if so, for how long they should be disqualified.
Disqualification proceedings are taken under civil law. Proceedings can be avoided as you may provide an undertaking to the Secretary of State that has the same effect as a disqualification order.
How will I know if a disqualification order is to be sought against me?
Notification of a decision to apply for a disqualification order will be sent to the last address you provided to Companies House or the liquidator. The application for disqualification has to be made within 2 years of the date of liquidation, unless the court extends the time.
Examples of conduct that may lead to disqualification include:
Can I re-use the company’s name or trading styles?
Section 216 of the Insolvency Act 1986 restricts the re-use of a name previously used by a company that has gone into liquidation; this includes a trading name or a name which is so similar that it suggests that there is an association with the failed company. This restriction applies if ;
The restriction which prohibits a person to be a director or take part in the promotion, formation or management of as company using a prohibited name (and applies also to a partnership or a sole trade not just a limited company) for five years from the date of liquidation, does not apply if the other company had already been known by that name during the whole or part of the 12 month period and was not dormant in that time.
If you do not comply with this restriction or act as a director without leave of the court, you may be held personally liable for the debts of the new or successor company. You may also be committing a criminal offence. If you believe these restrictions may apply to you, you should seek advice on you own position.
During this liquidation, can I act as a director of another company?
You can act as the director of another company unless you are subject to a disqualification order, have given a disqualification undertaking, are an undischarged bankrupt, or are subject to a bankruptcy restriction order or undertaking. A disqualified person must obtain the permission of the court to act as a director or to be concerned in the promotion, formation or management of a company.
How long will the liquidation last and when will the company cease to exist?
The liquidation will continue until the liquidator is satisfied all assets have been realised and there are no matters outstanding that need to be investigated. The liquidation could therefore last for many years but most liquidations are concluded within 12-18months.
When the winding up is complete, a final meeting of members and creditors will be called and the liquidator will seek his release from office. Unless any members or creditors object the liquidator will automatically obtain his release. On release, the liquidator sends a notice to the Registrar of Companies and the company will be dissolved 3 months later. It then ceases to exist.
Will I have to pay off any of the company’s debts?
You may be required to contribute to the company’s assets if you have misapplied company funds or if the company as traded wrongfully or fraudulently. If you are a shareholder of the company, you may be asked to make a payment for any shares that have not been fully paid up. If you, or any other person, have guaranteed any of the company’s debts you will be required to make payment under the terms of the guarantee.
Do I have to supply information about the company to the liquidator?
Yes you have a duty to provide information and co-operate with the liquidator. Failure to co-operate is a serious matter and can result in an application to court for you to be examined, and a cost award can be made against you. If you do not attend the examination without giving the court a good reason, a warrant may be issued for your arrest.
Your failure to co-operate with the liquidator is a breach of the Insolvency Act and can lead to prosecution and a fine. It will also be a factor in deciding whether you are fit to be a director. You also have a duty to ensure all the financial and statutory records of the company are forwarded to the liquidator.
What will happen to the directors once the company has been wound up?
The directors will no longer have control of the company’s business, assets and property. Most of the powers as a director will cease and, in general, they are no longer entitled to act for or on behalf of the company. The duties and responsibilities of a director to co-operate with the liquidator do not cease.
Should the company continue to trade?
Once the board meeting has been held and it has been decided to convene the meetings of members and creditors trading should cease unless it has been agreed with the proposed liquidator that trading should continue to enable the better realisation of the company’s assets.
Any deliveries of stock received after the board meeting should be held separately to one side until the appointment of a liquidator. In most circumstances monies received from book debts should be forwarded to the proposed liquidator to be held on trust until a liquidator is formally appointed. You will be advised if this is necessary. No further payments should be made to creditors.
To help you understand your company insolvency options, The UK Company Insolvency Helpline offers a free consultations during which we will listen to your problems and then outline:
To find out how we can help and arrange a free initial no obligation consultation please contact us.