Creditors Voluntary Liquidation & Phoenix Companies
In certain situations there may be no other alternative but to place a company or LLP into Creditors’ Voluntary Liquidation (“CVL”) which is the process driven by the directors and shareholders to “voluntarily” liquidate a company or LLP.
It has traditionally been used for the orderly wind up of a company where there is no longer a viable business but recently has been used more frequently as a recovery process, for example, to reduce staff numbers (with TUPE not always applying unlike in administration); leave behind old debt; leave behind burdensome property leases and finance leases and unprofitable contracts (not applicable in administration).
If you want to close your insolvent business; not continue to trade and walk away from the company debts then CVL is probably the best course of action to adopt.
If you want to close your insolvent business but continue to trade and there is a viable business which can be restructured a CVL coupled with a phoenix company may be the appropriate course resulting in a potentially better return for creditors.
We can help advise you whether a CVL (as opposed to administration) and | or a phoenix company is the right option for you depending upon you and your company’s circumstances and we will help you;
- devise the strategy
- assemble your offer for the business and assets
- structure the acquisition for you either prior to a formal CVL or after the company has entered into a CVL
- deal with all ancillary matters
We will ensure you are fully advised in connection with the provisions relating to the reuse of the liquidated company name and that the appropriate exemptions to reuse a name are utilised. Failure to comply is a criminal offence and punishable by a fine and | or imprisonment and personal liability for all the debts of the phoenix company.
It is not the role of the insolvency practitioner to advise you of these obligations as they are obligations of the new company and yourself as director/s.
So as to ensure your personal exposure is minimised and where possible eliminated we also ensure you are fully advised in connection with all the various provisions under which directors can face claims from liquidators | administrators in order that transparency is demonstrated by an insolvency practitioner at the outset not after the event, for example,
- unlawful dividend distributions;
- overdrawn loan accounts;
- preferences;
- transactions at undervalue;
- wrongful trading;
- misfeasance (in essence breach of fiduciary duty) – see our sections on Directors Duties & Liabilities under the Companies Act 2006 and Insolvency Act 1986.
In our experience in many cases insolvency practitioners will advise the directors on placing a company into an insolvency process and thereafter generate recoveries (ultimately exhausted by their fees and the fees of their advisors) by pursuing the directors.
Compulsory liquidation
In this legal process, a liquidator is appointed by order of court to wind up a limited company. An unsecured creditor normally an unpaid supplier usually commences this.
A winding-up-petition (“Petition”) must not be ignored and you should immediately seek advice from us. Once the petition is advertised your bank account will be frozen. All transactions undertaken after the issue of a winding up petition are void | illegal.
A Petition will therefore stop your company from trading and will result in matters being taken out of your control.
If contacted early enough we can assist in having winding up petitions withdrawn and in some cases dismissed. A Creditors’ voluntary liquidation and phoenix company process can be an effective alternative process.
Members’ Voluntary Liquidation
This is the liquidation of a company that is solvent and it can take place under the following circumstances:
- A breakdown in the relationship between directors or members
- Changes in the market that result in the company no longer being a viable business
- Members wishing to remove their investment from the company and retire
Members’ voluntary liquidation provides a greater degree of certainty than a striking-off. It can be a useful tool in re-structuring, as it only lasts until dissolution compared to twenty years in a striking-off.
Naturally this option is only available where a company or LLP is solvent.
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The Venture Consulting Team