Voluntary Liquidation Services

Creditors’ Voluntary Liquidation (“CVL”) is the main insolvency process used by directors to close a company when it has reached the point where it is insolvent and unable to settle its liabilities as they fall due. This protects them from becoming personally liable for the company’s debts if they take this step as soon as they become aware that the company will not be able to settle any additional liabilities taken on.

Where a company is solvent, the directors can use Members Voluntary Liquidation (“MVL”) to extract any surplus cash tax efficiently.

There are two main types: Creditors’ Voluntary Liquidation (CVL) for insolvent companies and Members’ Voluntary Liquidation (MVL) for solvent companies.

A company can only be liquidated by a qualified Insolvency Practitioner (IP) who has taken instruction from the directors of the company in question, under the provisions of the Insolvency Act 1986.

Unqualified advisors may seek to convince directors that they can assist them to resolve the difficulties of their company for less cost and without experiencing adverse ramifications. However, this can often lead the directors into worse situations than if they had taken and followed the measured professional advice of an Insolvency Practitioner at the outset.

The directors remain as directors but they lose their executive capacity. The liquidator assumes control of all company assets. He also oversees any remaining redundancy process and facilitates claims by employees to the government for any unpaid amounts due to them under their employment contracts.

The liquidator realises the assets of the company and then distributes the proceeds to the creditors in the prescribed order of priority after the settlement of relevant costs.

Additionally, the liquidator has other statutory duties to discharge such as completing a questionnaire for the Insolvency Service under the Company Director Disqualification Act 1986. This is then used by the Insolvency Service to consider the fitness of the director to continue to be able to act as a director.

• If implemented at the right time, it protects the personal assets of the directors from creditor claims
• Places the affairs of the company into the experienced hands of an Insolvency Practitioner who is skilled and experienced in bringing the activities of the company to an orderly end
• The Liquidator will realise the assets of the company and if there is a viable core business, he can sell it to allow the business to acquire a new life.

And in the case of a Members Voluntary Liquidation, the advantage in situations where the amount to be distributed back to the shareholders exceeds £25K, this maximises the possibility of HMRC recognising it as a capital distribution eligible for a 10% tax rate, subject to other criteria being met.

• If there is a viable core business that can be salvaged, it will be more disrupted by extracting it from the current company and re-lifeing it in a new one than would be the case if a Creditors Voluntary Arrangement (“CVA”) was used to rescue the business.
• Trading tax losses are lost at the point of liquidation, although in certain circumstances they can be protected by using a “hive down” process into a directly-owned subsidiary pre-liquidation
• If directors have personally guaranteed some of the liabilities of the company, the initiation of the liquidation process will crystalize these liabilities for the directors

In the case of a Members Voluntary Liquidation, the main disadvantage is that the directors’ and shareholders’ personal financial position needs to be carefully considered with their tax advisors as to whether it is the most tax-efficient solution for them. This is because in certain circumstances the residual amount for distribution could be returned to them at a tax rate that is lower than 10%

The costs of a voluntary liquidation are met, in the first instance, from the realisation of the assets of the company. In the case where the company has no or very few assets to realise, the directors may choose to sponsor the cost of placing the company into liquidation.

There is no prescribed period for the duration of a liquidation and the time taken will depend upon a variety of factors.

It would be unusual for one to be completed within three months but probably the majority could be completed within twelve months. Any sale of the business is conducted promptly upon commencement and the directors’ input to the process is predominantly focused on the steps required to place the company into liquidation.

Directors are relieved of their duties once the liquidation process begins, but they must cooperate with the liquidator and provide necessary information.

Voluntary liquidation can help protect directors from personal liability, provided they have acted responsibly and complied with legal obligations.