It’s important not to forget that directors struggling under the weight of escalating debts are not alone and that by appointing an authorised insolvency practitioner for guidance sooner rather than later, the business has a better chance of survival.
However, if the worst-case scenario arises and the business cannot trade itself out of insolvency, the best course of action may be a Creditors’ Voluntary Liquidation also known as a CVL.
A Creditors’ Voluntary Liquidation simply does what is says on the tin: it’s a process where the company’s directors decide to bring the business to an end voluntarily.
The CVL procedure is a quick and efficient way of shutting shop and putting an end to worries caused by the company’s mounting debt pile.
Liquidations Follow Strict Timelines
A CVL is a fast-paced and deadline-driven procedure. The first step is to call a shareholders’ meeting. Shareholders must be given 14 days’ notice of the meeting. However, the meeting can be held at shorter notice if 95% of shareholders are in agreement.
Holders of floating charges, such as banks are given at least five days’ notice of the intention to pass a resolution to wind up voluntarily. More importantly, the resolution cannot be passed until the expiry of the notice or unless earlier consent has been obtained by the floating charge holders.
At the shareholders’ meeting a number of resolutions are passed, such as to wind up the company and nominate a liquidator. In line with insolvency rules, the meeting doesn’t require shareholders to physically be there as the resolutions can be written.
Seven Days to Deliver a Notice to Creditors
The day after the shareholders’ meeting where the company was wound up and a liquidator was nominated, the company directors have seven days to deliver a notice to creditors, requesting their vote on the resolutions passed.
The decision date or meeting on these resolutions should be no earlier than three days after the notice is delivered and no later than 14 days after the shareholders’ meeting.
Creditors can vote on the proposals using a number of decision-making methods, such as correspondence, electronic voting or a virtual meeting using video conferencing, for example.
Creditors also have the right to request a physical meeting if they can meet the 10/10/10 rule. This is 10% of creditors (in value) or 10 individual creditors or 10% of creditors (in number) must support the request for this type of meeting.
The new system of ‘deemed consent’ was introduced with the new rules in April 2018. Creditors are now ‘deemed to have consented’ to a decision or resolution if 10% of creditors (by value) have not objected to it. In other words, if objections are not received by the decision date, creditors are ‘deemed to have consented’ to the decision or resolution. It’s worth noting that deemed consent cannot be used to approve liquidation fees, and another meeting process must be sought on this matter.
If your company is experiencing cash flow problems, this is a sure sign that insolvency is looming. For guidance on how to improve cash flow or on whether a CVL is appropriate for your business, please call 08000 746 757 or email [email protected] for free and confidential advice from one of our professional advisers.
How Long Does the Liquidation Take?
Unfortunately there is no easy answer to this question. It varies widely depending on the state of the company, its size and the complexity of its assets.
To actually place the company into a CVL can take as little as 14 days. To complete the liquidation so that all assets have been realised and the proceeds distributed to creditors is more commonly a process that takes a year, or even longer where big companies are concerned.