When a limited company becomes insolvent and there is no chance of rescue or restructure, liquidation becomes the only remaining possibility. But directors do have the option of voluntarily liquidating their company, rather than waiting for a creditor to wind it up.
A Creditors’ Voluntary Liquidation (CVL) places creditor interests at the fore, as demanded by UK insolvency laws, but this process does come with a financial cost attached. Typically this cost is met by using the assets of the company which will be liquidated as part of the process, however, even in instances where there are no company assets, a CVL may still be a viable option.
A CVL is initiated by the directors or shareholders of an insolvent company where financial distress and creditor pressure has reached a level that can no longer be managed.
The process begins by passing a winding-up resolution once 75% (by value) of shareholders vote in favour of the liquidation. Companies House is then informed, and an advert announcing the resolution is placed in the Gazette.
A liquidator is appointed, who assists directors in preparing the Statement of Affairs. This essentially details the reasons for the company’s financial predicament, and is sent to creditors who are then invited to make their claim against the company.
Once the liquidation process has been completed, the company closes down and is removed from the register at Companies House, but the liquidator’s investigations may continue if necessary.
In general terms, the duration of a Creditors’ Voluntary Liquidation can be up to 12 months, but in most cases the process is completed much more quickly than that.
Directors working for the company under a contract of employment may be eligible to claim redundancy pay from the National Insurance Fund (NIF). The average claim for director redundancy is currently £9,000, a considerable sum that could be extremely useful during this financially stressful time.
So how much might a no asset liquidation cost? For a small limited company the cost is likely to be around £4,000 or £5,000 plus VAT. If the company has no assets then the director will be required to pay for this process using their own personal funds.
If you would like more information about no asset liquidations, or require specific advice about your own company’s situation, our experts at Begbies Traynor can help. We are the UK’s leading professional services consultancy, and operate from over 40 offices nationwide. Call one of the team to arrange a free same-day consultation.