A creditors’ voluntary liquidation (CVL) is an insolvency process that any business, large or small, can go through. They have become increasingly popular in recent years as a way of winding up a business completely. However, there are pros and cons to them, so seeking professional advice from Salient Insolvency is definitely worth it if you are considering going down this route with your business. Read on to find out more.
What Are CVLs?
To begin with, a CVL will necessarily result in a company closure. This is because it is an insolvency process that, despite being entered into voluntarily, seeks to settle as many business debts as possible in the fairest way that can realistically be achieved. Bear in mind that this sort of liquidation procedure is only advisable if your business is truly insolvent. It could be that it might become solvent again given the right business rescue package. Therefore, just because they’re popular doesn’t necessarily mean they constitute the right approach to take in all circumstances.
Why Are CVLs Popular?
As opposed to other liquidation procedures, CVLs are popular because they afford both creditors and company directors certain advantages. Firstly, directors may be able to secure redundancy pay for themselves if certain conditions are met. This is a big plus point when you might otherwise face personal financial hardship from the insolvency of your company. In addition, directors get to choose their own liquidator to wind the company up, thereby offering them a greater degree of control.
Any company director in the UK is legally obliged to show that they are aware of their firm’s financial position at all times. By entering a CVL voluntarily, it demonstrates they have taken appropriate action when the company became insolvent, potentially saving them from further legal action and even criminal proceedings. What’s more, a professional liquidator will help to wind the company up in the most efficient manner possible so the process shouldn’t be dragged out. Another reason for the popularity of CVLs is that debts will be written off at the end of the process. As such, directors shouldn’t be hounded by creditors once the company has officially been closed.
Are There Drawbacks to Consider With CVLs?
With so many advantages associated with CVLs for directors of insolvent firms, you might be tempted to only look at this route going forwards. However, there are other options available when trading in financially difficult times. Furthermore, CVLs may not be appropriate for directors who have issued any personal guarantees against company borrowing. In such cases, they may be liable for such debt even though the company has been liquidated.
In addition, CVLs are a public process that will end up with the company being struck off Companies House records. This can cause reputational damage that some people want to avoid, especially if they have other business interests. It is also worth bearing in mind that all the staff you formerly employed will be made redundant, something that puts some directors off.
When you have completed the web form with all of your details, the bankruptcy application will not be immediately approved. Instead, the application will go to someone at the Insolvency Service known as an adjudicator. A decision will then be made about whether the application has been successful. Adjudicators are allowed up to 28 days to make their decision. If approved, you will be formally notified and an official receiver will then be appointed to go through your case. If the adjudicator turns down your application, then your only option is to appeal the decision and ask for it to be reviewed. This must be done within 14 days of the decision being made, however, or it won’t be considered.