A Creditors Voluntary Liquidation is a type of winding-up but should not be confused with a compulsory winding up, which is by order of the court.
A company can be placed into Creditors Voluntary Liquidation in a period as short seven days and creditor pressure can quickly be removed, legal action can be prevented and your general concerns and worries can be bought to an end.
What is the process?
Initial consultation and face-to-face meeting
Directors facing Creditors Voluntary Liquidation are very often under considerable pressure as they try to deal with a struggling business. At Debt Solutions Hub Limited, we specialise in assisting directors and supporting them through this time. The first step is to contact a qualified Insolvency Practitioner for advice and guidance as to the options available and the actions that a director should and should not take.
If you are satisfied with the advice received then you would formally instruct the IP to commence the process of placing the company into Creditors Voluntary Liquidation. It is worth noting that the process is the same regardless of the size of company and that it is not uncommon for the company to have only one director/shareholder.
The first step of the process is a board meeting. A draft agenda, matters to be considered and draft minutes will in practice be provided by the IP and the meeting will predominately agree the following:
- The date and time of the decision procedures for shareholders and creditors
- The director to be appointed as the convener of the decision procedures (a director acts as the convener)
- The directors to be responsible for verifying a Statement of the company’s assets and liabilities (a majority of those appointed is required).
At the end of the board meeting the appointed director will be required to sign notices to the shareholders and creditors detailing the proposed winding-up and inviting them to participate in the decision.
- Written resolutions will then be circulated to shareholders in order to consider whether or not the company should be placed into Liquidation and the appointment of the Liquidator (IP) nominated by the board.
- It is also possible to do this by way of a general meeting of the shareholders
For the company to be placed into Liquidation, 75% or more of the shareholders must agree to pass the resolution.
- Once the company is in Liquidation the creditors are invited to validate the appointment of the shareholders’ Liquidator (or to nominate their own) and where appropriate to agree the Liquidators costs. One of two decision procedures will be implemented:
- A virtual meeting (held at the IP’s offices), whereby creditors are invited to attend through an IT platform i.e. conference call or Sykpe
- Deemed consent whereby the appointment of the Liquidator is accepted by the creditors unless 10% in value of claims, 10% in number of creditors or 10 individual creditors object. Where the threshold is met a physical meeting will be convened to consider the appointment of the Liquidator. The Liquidators costs cannot be agreed by way of deemed consent and so a decision by correspondence may be issued at the same time.
In practice, the shareholders meeting and the meetings of creditors will be scheduled for the same date and a timescale will be agreed whereby sufficient notice is provided.
The company, if it has not already ceased to trade, will do so at the time of the Liquidators appointment. In addition to this the Directors powers will cease. Effectively the IP who has now become known as the Liquidator will take over from the directors and deal with the company’s affairs.
The Liquidator will deal with all creditor issues and will seek to realise the assets of the company in an orderly fashion. The director will no longer need to speak to the creditors or run the company but may be required to assist the Liquidator if he believes that this will be beneficial.
The Liquidator will also take control of the company’s’ books and records and will review these as part of his report of the directors’ conduct.
In practice, the Liquidator submits their findings to the Department of Business, Energy and Industrial Strategy, a governmental department who will consider the Liquidators report and may take further action against the directors if deemed appropriate.
A Compulsory Liquidation is a court-led process, which may be initiated by the directors and or shareholders of the company but is more commonly initiated by a pressing creditor(s). A company can be forced into Liquidation by any creditor owed more than £750, by presenting a petition to the court.
A winding-up petition is a serious matter and should never be over-looked by a company. The petition will quite often be preceded by a statutory demand, which is a formal demand for the debt which is owed. If your company has received a statutory demand or a petition to wind-up and you are unable to pay the debt, or otherwise dispute it, then please contact us to discuss the available options with a qualified and Licensed Insolvency Practitioner. We also have access to a number of legal partners who specialise in defending petitions where there are grounds to do so.
A petition to wind-up the company can have serious consequences, including:
- Bank accounts are generally frozen on advertisement of the petition
- Payments made after the date of the petition become void
- The closure of your business, which could otherwise be avoided with appropriate advice and assistance
A petition further limits the options which are available to the company. Applications for an Administration Order (where the business is viable and can be rescued) become costly as the application must be made to court and creditors are less likely to agree to a Company Voluntary Arrangement.
If you are served with a winding-up petition it could only be a matter of weeks before your company will be forced to cease to trade and you have the matter taken out of your hands. It is therefore imperative that you contact us on 08000 724 558 as soon as possible so that we may assist you.
If you choose to ignore a petition to wind-up your company it is highly likely that a Winding-up Order will be made by the court. The result of the order is that the Official Receiver will be appointed as Liquidator and control of the company will pass to him. The company will cease to trade, assets will be taken into the possession of the Liquidator and your conduct as a director will be investigated.