Types of Liquidations.
Complusory Liquidation-vs-Voluntary Liquidation
Sometimes, it is inevitable that a company will need to close. We will make sure that all avenues are explored and advise on the most appropriate closure route.
If a company cannot pay its debts as and when they fall due and have more liabilities than they do assets, then the company will be deemed insolvent. At this stage it is better to take action as any delays could result in the position getting worse, some options running out and potential liabilities to the directors. Sometimes, it is inevitable that a company will need to close. If it is at this stage, we will make sure that all other avenues are explored and then advise on the most appropriate closure route. We understand that there will be job losses and lots of mixed emotions from all people connected with the firm. This is particularly difficult if it is a family business.
There may be liabilities that directors of other key persons will become responsible, such as a personal guarantee from the bank. We will take all this into account. Whatever way a company is closed, at Revive Business Recovery we make sure that this is done with decorum and professionalism in a timely manner.
Compulsory Liquidation
What is Compulsory Liquidation?
A Compulsory Liquidation is where the Court makes a Winding Up Order and an Insolvency Practitioner is appointed (usually the Official Receiver) to place the company into liquidation.
A Compulsory Liquidation is where the Court makes a Winding Up Order and an Insolvency Practitioner is appointed (usually the Official Receiver). A creditor will have typically instigated this when presenting the Company with a Winding Up Petition, which normally follows a formal or statutory demand for payment. Due to the required notice periods at each stage of this procedure, it could take 6 weeks or longer before the Company is placed into liquidation. Leaving creditors, employees and customers in limbo in the meantime.
This is the process that creditors can use to force a company into liquidation if it fails to pay monies it owes to them in a timely manner. It is commonly used by H M Revenue and Customs when companies fail to pay their taxes or penalties when they are due.
How does it work?
The bank will normally freeze the account when they discover that a winding-up petition has been presented against a company. This may have a serious effect as wages may not be paid and other necessary payments such as rent. Any actions from employees and landlords would just escalate the position further.
Shareholders of the company or its directors can instigate this process if they want their company to be liquidated, but there are insufficient assets in the company to finance a Creditors Voluntary Liquidation ‘CVL’. We can assist you in this matter.
No matter who has made the application, it is the Court who will make the order for the winding up of the company.
After a Court order has been made, it is most likely that an Official Receiver (‘OR’) will be appointed Liquidator. The OR will need to get information from the company in order to get a full understanding of its assets and liabilities and also for them to conduct a thorough investigation into the conduct of the directors.
The OR may appoint another Insolvency Practitioner to deal with the assets and liabilities of the company (but will remain responsible for the investigations), if it is appropriate.
A creditor or majority creditors with majority voting rights may also request a meeting of creditors is summoned to appoint a liquidator. We will be happy to discuss this with any creditors considering this action.
Things to consider
A few technical points on Compulsory Liquidations
The company must be insolvent for an order to be made
A petitioning creditor must be owed more than £750 when they petition and can show that they have taken reasonable steps to recover this from the company
A petition can also be made if it is in the public interest for the company to be wound-up
A winding up petition will be advertised and will be common knowledge
After the petition is advertised, other creditors may attach to the petition and may be substituted for the petitioning creditors (if you pay the petitioning creditor the amount due)
Any transactions after the petition is presented will be looked at and transactions regarding sale of the company’s property or relating to shareholdings will be void when the company is placed into liquidation
A compulsory winding up can also be made as a result in a stalemate situation where shareholder disputes cannot be resolved amicably
Creditors Voluntary Liquidation (CVL)
A CVL is where the directors instigate the procedure. They are effectively holding their hands up and saying the company cannot survive and needs closing. We have streamlined this as much as possible.
What is a CVL?
A CVL is where the directors instigate the procedure. They are effectively holding their hands up and saying the company cannot survive and needs closing. It is a voluntary liquidation and this could take place in as little as 11 days from the day the decision is made to liquidate, but is typically about 3-4 weeks. There is a lot of red-tape that goes with this, but we have streamlined this as much as possible to carry out an efficient and timely service.
This is the most common insolvency procedure. It is a relatively complicated procedure, but we have streamlined it as much as possible to take the complexities out of it. We will support and guide you through this.
How does it work?
Our Insolvency Practitioner is involved with the case from your first phone call right to the end. She is extremely experienced in this area (has liquidated over 1,000 Companies) and is extremely approachable and empathetic.
We will assist with any redundancies that may need to be made and ensure that your employees are fully aware of the situation and how it affects them. We will also assist them in claiming any monies due to them for wage arrears, holiday pay, pay in lieu of notice and redundancy pay from the Redundancy Payment Fund. We will also work with the jobcentre if there are a large number of redundancies.
We will try to minimise the amount of time that we ask a director to spend on this by ensuring that we get the information about the company, the creditors and the assets so we can prepare all the necessary paperwork.
What is the procedure?
A CVL starts with the directors taking the decision to liquidate the company. They will sign board minutes declaring this and will summon a meeting of the shareholders and creditors. At least 3 full days notice is required for creditors (plus postage days allowed).
The shareholders meeting will be held just before the creditor are given the opportunity to vote on the decision to appoint a liquidator and the shareholders will pass resolutions to put the company into liquidation. The vote of creditors is usually conducted by way of a virtual meeting, however a physical meeting can be requested by creditors and if requests collectively exceed 10% in £ value, 10% in number of creditors or more than 10 in number, then a physical meeting will be convened. The creditors meeting will then be held (either virtually or physically) and a director will attend. The creditors will vote on who they want to be liquidator and they may form a committee of 3 to 5 members who are representing the general body of creditors.
If a committee is formed, they will decide how the liquidator will be paid. If there is no committee, the general body of creditors will set the fee of the Insolvency Practitioner.
In order to make informed choices, there is certain information that is presented to creditors. This includes a report containing the following:-
Statutory information
A brief history of the company and how it has ended up in the position it is in
Extracts from accounts (usually three years if available)
A statement of assets and liabilities as at the date of the meeting (called a statement of affairs) – usually with notes
A deficiency account trying to reconcile the difference between the accounts and the statement of affairs
A fees and expenses estimate
A material transactions report (if appropriate)
The report will provide an indication of whether the creditors will receive any monies from the liquidation, known as a dividend.
Following on from the meeting, the liquidator will realise any cash at bank, plant and machinery, book debts and retentions, vehicles and any other assets.
The liquidator will also have a submit a statutory report to the Insolvency Service to either state on record that they have either not found issues of concern regarding the directors conduct or that they have found actions that they feel they need to report. The Insolvency Service will then take the decision of whether to take this further (or not).
When all assets are realised, all investigations are complete and any dividends paid, the liquidator will send a final report to creditors. If the company is not closed within one year, the liquidator will provide annual reports to creditors.
How much does it cost?
The fees of a liquidator will be drawn from the amount of monies realised from the assets. Usually an Insolvency Practitioners fees will be spent on time properly spent on that liquidation at a rate set and circulated to creditors. The amount of time will depend on the complexities of the case, any investigation findings, the amount of creditors, other matters such as pensions and many other things. At Revive Business Recovery we have set our rates at a low level so we are fair to the company and its creditors.
We will cap fees on liquidations at agreed levels to ensure that debenture holders will receive a dividend if this has been personally guaranteed by a directors.
If there are insufficient assets in a company to cover a liquidators costs, and directors or shareholders are willing to contribute to the liquidators fees, then we will do a liquidation of the company from £5,000 plus disbursements plus VAT.
Members Voluntary Liquidation (MVL)
When the shareholders of the solvent companies decide to close the company, if the distribution is likely to be more than £25,000, it is necessary to use the MVL procedure.
What is an MVL?
When the shareholders of the solvent companies decide to close it, if the distribution is likely to be more than £25,000, it is necessary to use the MVL procedure as by doing so, the shareholders may have some tax savings.
A company can come to the end of its useful life for a variety of reasons, such as:-
A shareholder may want to retire
A shareholder may wish or take their investment (and its value) back out of the company
There may have been changes in the market that make the company’s services redundant
The company may have been incorporated to carry out a project, which is complete (SPV).
An Insolvency Practitioners’ services are necessary to facilitate an MVL and at Revive Business Recovery we have an expert in this area.
An MVL is a relatively straightforward liquidation (but with lots of paperwork). We have streamlined this procedure to make it easier and quicker to do and we ensure that you are fully informed and supported through this.
How does it work?
We will help the shareholders to close the company in an orderly manner and minimise the costs to professionals to ensure that they get the money back that they deserve.
Their return or investment would be classed as a capital distribution and may qualify for entrepreneur’s relief (up to £1m at 10% during the lifetime of the individual). If the shareholders receive a dividend whilst the company is trading, this would be classed as income and may be taxed at a higher rate in the majority of cases, and the shareholders will generally pay less tax if they qualify for the entrepreneur’s relief.
Briefly, the procedure comprises of
Declaration of Solvency – A statement of assets and liabilities
Appointment of a liquidator
Realisation of assets
Payment of tax and other creditors
Distribution to shareholders
Closure
We recognise that shareholders will want to receive their money or other assets (such as a property) as soon as possible and we will distribute at the earliest opportunity. This could be as early as the date of the appointment.
For companies where they only have the cash at the bank left to deal with, the cost can be as little as £2,500 plus VAT and disbursements.
If you are thinking of liquidating your company, please contact us on +44 (0)121 725 4036 or fill in our form and we will get back to you.
