| Creditors Voluntary
Liquidation
The decision to
commence a Creditors’ Voluntary
Liquidation (CVL) is one made by the directors/shareholders
of a company. As a director/ shareholder
you control the timing of the CVL and also,
you decide on the Insolvency Practitioner
who is to assist the company to go into
CVL and who is to be nominated as Liquidator
by the shareholders. Whilst the shareholders’ nomination
for Liquidation is subject to the agreement
of creditors at the Creditors’ Meeting,
in the vast majority of cases the creditors
accept the shareholders’ nomination.
CVL is, however,
terminal for the company. It ceases to
trade and the liquidator is left to dispose
of the assets. The liquidator’s
objective is to maximise realisations from
the sale of assets, collection of debts etc.
in order to pay a dividend to creditors,
if at all possible.
In many cases directors/shareholders
are interested in trading again. Generally
there is nothing to prevent this, they can
bid for and purchase the assets, subject
to the liquidators agreement. They can set
up and control a new limited company. Directors
are not liable for the debts of the old company
unless they have signed personal guarantees
to that effect.
The liquidator will
also review the company’s affairs with
a view to reporting to the DTI on the conduct
of the directors. This happens in every case.
In instances where the insolvency is genuine
and due to little or no fault of the management,
then this report will do no more than indicate
to the DTI who the directors are. At the
other end of the scale, it can highlight
offences which may lead to directors being
disqualified from acting in that capacity
in the future.
There are strict rules
of priority as regards the order in which
the creditors are paid. In the event that
a bank or other party holds a fixed and floating
charge over the assets of the company (a
debenture) then they will be entitled to
realisations from “fixed charge assets” first.
These might be freehold property, fixed plant
and machinery, goodwill and realisations
from investments, for example. Book debts
used to fall into this category but the decision
in Brumark Investments Ltd, which has been
upheld recently in a test case has thrown
this into doubt. Whilst the decision in the
test case is likely to be appealed, directors
can no longer rely on book debts being caught
in this manner.
On 15th September 2003 the corporate provisions
of the Enterprise Act 2002 came into effect.
They abolished the rights of the Inland Revenue
and HM Customs and Excise to establish preferential
claims. They rank with trade creditors for
any dividends. The only preferential claims
are now those from employees or the Redundancy
Payments Office acting in their place, in respect
of arrears of wages and holiday pay. To a large
extent this makes the Brumark decision irrelevant
in the majority of new cases as book debt realisations
will work their way down to the holders of
floating charges without first having to satisfy
large preferential debts. |
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However,
for floating charges created after 15th September
2003 the holders will have to give up a percentage
of realisations to unsecured, non-preferential
creditors. Therefore, these provisions should
mean that creditors as a whole are more likely
to receive a dividend in insolvencies than
was previously the case.
In all cases of insolvency,
personal and corporate, employees, and in
certain instances directors, can claim arrears
of wages, holiday pay, redundancy and monies
in lieu of notice from the government, subject
to statutory limits. The Redundancy Payments
Office then takes the employees’ place
as a creditor. The Insolvency Practitioner
concerned will be able to advise directly
on these claims in specific circumstances.
Creditors Voluntary
Liquidation (CVL) – Centrebind
In the event that the
company is insolvent and has assets that
are perishable or require immediate protection
to preserve the value of the business, a
specific procedure can be implemented which
significantly reduces the time required to
put the company into liquidation. This is
achieved by holding shareholders and creditors
meetings on a “back to back” basis.
The procedure is rarely used and is therefore
not covered here in great detail.
For further information for company directors
see Directors
Responsibilies
Take advice, call our
advisers on 0800 881 8879 (FREEPHONE)
or email us at: debtadvice@24-7finance.com .
This is a confidential and free service.
|
Voluntary Liquidation
