Liquidation Advice

Liquidation Advice

Many businesses experience cash flow problems for a variety of reasons,from the loss of a contract or late or non-payment of invoices. If the company cannot trade out of its cash flow situation then the most appropriate course of action could be to cease trading. The directors and shareholders need to make the decision to close the business, the most common route is via a voluntary liquidation. Other options are available including a Company Voluntary Arrangement (CVA) or a Members Voluntary Liquidation (MVL).

Voluntary liquidation has many advantages including writing off 100% of your debts, stopping demands from creditors and allowing the directors to move forward without any personal liability unless personal guarantees have been given.
To decide the most appropriate course of action is a voluntary liquidation the directors need to hold a board meeting , if it is agreed that a CVL is the correct route then the directors need to convene an Extraordinary General Meeting (EGM) of the shareholders. The Shareholders attending the EGM will decide if a resolution needs to be passed to place the company into liquidation.

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For the liquidation to go ahead a creditors meeting has to take place. The Creditors have the opportunity to attend the meeting where they have the chance to ask any questions or raise any issues regarding the appointment of the liquidator or the proposal itself. The creditors will also receive a report on the company and a statement of affairs, they rarely attend the creditors meeting and in most cases use a proxy vote. The creditors meeting is advertised in the London Gazette and a newspaper local to the company’s address.

The Insolvency Practitioner or liquidator has a duty to realise as much money as possible from the company assets. If any money is realised the creditors are paid in order of priority once the liquidator fees have been deducted. If the company has no assets then it may still enter liquidation but the fees will be paid directly by the directors.

The directors or officers of the business will not be personally liable for the company debts but if they have personal guarantees they will almost certainly be pursued by the respective bank or finance company. Help is available for individuals with personal guarantees or any kinds of personal debt without having to go bankrupt.

The directors of the company can purchase the assets of the company and use them to start a new business, this known as a phoenix company. The directors are free to hold other directorships and be officers of other companies unless they have been struck off or have been made bankrupt due to personal debts and liabilities.

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