Having to admit insolvency and face liquidation is not easy for any company director. No liquidation process is easy but what will make the process simpler is professional liquidation solicitors.
When entering into a CVL (Creditors Voluntary Liquidation) or an MVL (Members’ Voluntary Liquidation) process, it must be handled by a licensed insolvency practitioner (IP) in accordance with the Insolvency Act 1986. Liquidation solicitors, like Simple Liquidation, have a team of IPs that are able to manage the entire procedure, keeping it simple and guiding you at every step.
What is a CVL?
A CVL, or Creditors Voluntary Liquidation, is a formal insolvency process that is entered into voluntarily by an insolvent company’s directors. It must be managed by a licensed IP who acts as the liquidator. At the end of the process, the company is closed and removed from the Companies House register.
In most cases, the insolvent company has been dealing with growing debt and pressure from its creditors. Whilst it is a voluntary process, it is often a procedure that the company has to enter because all other options have failed to ensure the business does not have a financially viable future.
Establishing whether a company is insolvent is done through a cash flow test and a balance sheet test. If there are insufficient funds to settle the company’s debts, action has to be taken. A CVL is a voluntary liquidation process whereby the appointed liquidator takes control of the company, values and sells its assets, pays back the creditors in strict priority order (as set out in the Insolvency Act 1986) and subsequently closes the company.
There are a number of specific steps that the liquidation solicitors take when a company enters a CVL process:
- Following advice from an IP, a director’s board meeting is held to confirm a CVL is the best option for the insolvent company and an IP is formally instructed to act as liquidator and oversee the process. If there is only a sole director, they are above to make the decision themselves.
- The liquidator then assumes control of the company and sends a notice to the shareholders and creditors of a general meeting and date. At the same time, the liquidator will investigate how and why the company is now insolvent and prepare a report that includes the company’s recent accounts.
- As long as a minimum of 75% of shareholders agree to the CVL, the liquidation process starts. During the process, the liquidator liaises with creditors, resolves any issues, realises the company’s assets and distributes the proceeds. They also investigate the directors’ for any potential fraud.
- A notice must be published in The Gazette notifying interested parties that the insolvent company has entered a formal CVL process.
- Once the CVL process has been completed, the company is wound up, struck off the Companies House register and ceases to exist.
What is an MVL?
An MVL, or Member’s Voluntary Liquidation, is similar to a CVL in that it is a formal liquidation process but it applies to a solvent company. The directors of the company that has more than £25,000 for distribution to shareholders will have made the decision to liquidate, or close, the company for a variety of reasons, including:
- Retirement of director(s).
- The company is no longer required.
- Dividing the company or transferring
- Tax purposes.
As with a CVL, only an IP from a firm of liquidation solicitors can be appointed to act as a liquidator in an MVL process. The company has to meet certain criteria including:
- Has ceased trading and has, or will have, surplus funds once creditors have been paid.
- Has, or is in the process of, de-registering for PAYE, NIC, VAT and corporation tax.
- Has filed, or is in the process of, completing and filing their tax returns and accounts to the date trading ceased.
- Be in the position of being able to pay all creditors within 12 months of the liquidation start date.
Once these criteria have been met, the appointed liquidator can commence the liquidation process, following a specific set of steps:
- The directors of the company prepare and make a statutory declaration of the company’s solvent status and prepare a closing financial statement.
- A shareholders meeting is convened within five weeks of the sworn declaration to ask the members and/or shareholders to pass a resolution agreeing to the liquidation of the company, and they appoint a liquidator.
- The liquidator publishes a notice in The Gazette about the company entering an MVL process.
- At this point, the liquidator takes control of the company and realises the company’s assets, arranges to settle any claims from creditors, ensures any tax due is paid to HMRC and distributes any surplus funds to the company’s shareholders and/or members.
- Assets can also be distributed in specie – assets can be transferred to shareholders and/or members instead of being sold and the realised cash being distributed. This means that the assets don’t need to be sold.
With an MVL process, any creditor claims that are settled during the liquidation process are entitled to statutory interest on top of the amount they are owed. This is applied from the date the MVL process started and is currently set at 8%.
Although an MVL is a formal liquidation process, it is a clear and concise way to close a solvent business that is no longer needed, has reached the end of its useful life or is due to retirement of the director(s).
Liquidation solicitors, like Simple Liquidation, are a team of licensed insolvency practitioners who are experienced professionals in handling formal company liquidation processes.
Company or individual insolvency is not something that anyone wants to deal with; however, the sooner a financial problem is recognised, the sooner it can be dealt with and the more potential the company has in recovering. If you are struggling with debt, are considering winding up a solvent company, or declaring bankruptcy, contact Simple Liquidation for assistance. For more information on how our professional insolvency practitioners may be able to help your business, contact us today.