Typical Reasons for a Creditors’ Voluntary Liquidation

As professional insolvency practitioners, the team at Salient Insolvency can take you through all of your options as a business owner or partner when it comes to financial strife. It is worth bearing in mind that many insolvent firms can be turned around if the right measures are put in place early enough. Of course, in some circumstances, companies really do need to be wound up for the good of creditors, employees, directors and other stakeholders. However, we strongly recommend talking to us before you get to this stage. In many cases, a creditors’ voluntary liquidation (CVL) will be the preferred way forwards for an insolvent business. What are the main reasons for seeking one today?

To begin with, insolvent businesses tend to fall into one of two categories. The first is when company liabilities outstrip assets. The second is when debts that are due to be repaid cannot be settled immediately because of a lack of liquidity. Either way, you may want to take action before the situation worsens. If your business has been running on an operational loss for a while, then debts could be racking up. Under such circumstances, you could end up acquiring more and more creditors and less chance of paying any of them. If so, a CVL is often a good way to stop the business before it gains any further trading losses.

In some cases, creditors may have begun formal legal proceedings against you because of the debt you owe. A money judgement in the County Court is just one way that creditors can attempt to force their debtors to pay them, for example. However, if you don’t have the means to pay – as opposed to simply delaying payment – then you might want to consider applying for a CVL instead. The basic reason is that a CVL will halt any other legal proceedings over business debt that you may face.

If your business has been subject to a winding-up petition or you think that compulsory liquidation proceedings are likely to be taken out against it, then a CVL is often a viable alternative. This will depend on your exact financial circumstances, of course. However, CVLs are often preferable compared to compulsory liquidations and offer directors a bit more leeway in what happens. The big difference is you get to choose your insolvency practitioner with a CVL, something that won’t happen if the Official Receiver gets involved with a compulsory liquidation.

CVLs are also an option for company directors who would like to buy business assets, perhaps to restart the company under a new management structure. With a CVL, the assets of a firm should be valued by an independent assessor which means it is sometimes possible to buy them back even though the company has been liquidated in an official sense. The rules here are complex, but it can mean being able to allow employees to keep their jobs under the right circumstances. Seek our professional guidance to find out whether this option might be useful for you.