Creditors' Voluntary Liquidation (CVL)
If your company is struggling to the point that it’s become insolvent and you wish to cease trading and close the company via the correct channels, this is achieved by a formal process called Creditors’ Voluntary Liquidation – known as a CVL.
A CVL is the most common type of liquidation process in the UK and is designed to help directors of limited companies wind up the affairs of the business when it has debts it cannot repay, and give creditors the best chance possible of recovering the money they are owed.
As part of the CVL process, all assets belonging to the company will be identified before being sold - or 'liquidated' - by the appointed insolvency practitioner. The proceeds from the sale of company assets will then be used to repay outstanding creditors as far as possible. Any company debt remaining after this point will be written off, unless it has been secured by a director's personal guarantee.
The final stage in the liquidation process is for the company's name to be struck off the register held at Companies House. The company will cease to exist as a legal entity once this has been done.
How UK Liquidators can help with the liquidation of your company
If you have realised the company is insolvent, it is crucial that your company does not take on any further credit agreements or makes preferential payments to certain creditors as this could be deemed, in a liquidator’s eyes, as worsening the position of all your creditors.
In the majority of cases, you should not continue trading once you become knowingly insolvent; instead, consult with a licensed insolvency practitioner and take professional insolvency advice to protect both yourself and your creditors during this time.
Members' Voluntary Liquidation (MVL)
Members’ Voluntary Liquidation, usually referred to as an MVL, is the most tax-efficient way of extracting profits from a solvent limited company prior to shutting down the business for good.
If your company has reached the end of its useful life, and there are cash and/or other assets in excess of £25,000 to distribute to shareholders, an MVL is likely to be the best course of action for winding up your solvent business.
In order to enter into an MVL, directors must sign a declaration of solvency which attests to the fact that the business is solvent and able to repay any outstanding creditors (including contingency creditors) within 12 months. A licensed insolvency practitioner is appointed and they will work towards winding up the company and distributing the funds to shareholders.
As with a CVL, the end point of an MVL is when the company's name is struck off the Companies House register and ceases to legally exist.
Compulsory Liquidation
As the name suggests, compulsory liquidation is something which is forced upon a company against its will. A compulsory liquidation is ordered by the courts following a creditor's Winding Up Petition.
If a company has debts it is unable to repay, creditors can apply to the courts for a Winding Up Petition to be made against your company. This is the most serious step a creditor can take; they are effectively asking the courts to shut down your company.
Upon receiving a Winding Up Petition, time is truly of the essence if you want to save your company from closure and stop it being forced into compulsory liquidation.
If you have been threatened with a winding up petition and are concerned about the prospect of compulsory liquidation, the first port of call should be to consult with a licensed insolvency practitioner to discuss your options. You can arrange a free initial consultation with one of our local insolvency practitioners for free and immediate advice to help you avoid compulsory liquidation.
