Creditors’ Voluntary Liquidation isn’t necessarily the end

Creditors’ Voluntary Liquidation isn’t necessarily the end

Company liquidation is often seen as a very negative and reputation destroying process, but in actual fact it can be a great way to wipe the slate clean and embark on a new beginning if handled correctly. Creditors’ voluntary liquidation can sometimes seem like the only option, followed by shutting up shop and moving onto something new – but every insolvency case is different, and what if the long term prospects for your business are actually good? Do you still have to let go? Making contact with a licensed liquidation professional and getting some advice will open up one or two alternative options for you.

As a side note, you should seek out the help of an insolvency practitioner at the earliest sign of debt issues – the earlier you catch it, the more options will be open to you.

A Company Voluntary Arrangement – spreading out the debt

Your insolvency practitioner can approach creditors and propose a formal payment plan to allow your company to pay back its debt over a longer period of time. This means that the managing director can stay in place, and the existing team can carry on the business as usual. All historic debts are put into a separate ‘pot’ and dealt with gradually. Your trading profits will cover the repayments for as long as it takes to settle the outstanding balance with creditors. Here are one or two things to bear in mind when considering a company voluntary agreement:

  • The approval process (after the proposal is submitted by your practitioner) can take up to four weeks, so prepare in advance and nip this in the bud early.
  • At least 75% of creditors must agree in order for the arrangement to be put in play, otherwise the CVA will be rejected and the company may end up getting wound-up.
  • Payments to creditors have to go through a licensed liquidation professional who will oversee the process from start to finish.
  • Only limited companies/partnerships who are insolvent qualify for Company Voluntary Arrangements.

Pre-Pack Liquidation can also be an option…

This works in the same way as a Pre-Pack Administration plans. Basically, all the assets of a company are sold in order to pay its debts, which allows its directors to form a new company and start trading immediately completely free of old debt.  You’ll often hear of many ‘phoenix companies’ starting this way, which is a perfectly legal and efficient way of ‘rebooting’ a company.  In order for this to work, the whole procedure must be properly organised by a licensed insolvency practitioner.

Again, be sure to enlist the help of a licensed insolvency practitioner at the earliest possible opportunity. While your company may not necessarily enter liquidation, getting advice at the first sign of debt problems ensures that if you do, you’ll be armed with a wide array of potential options and won’t be backed into a corner.

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