FAQs

Administration

What is Administration?

Administration is a fast legal process that protects your limited company or partnership by order of the Court. When in Administration, no legal action can be taken against the business or any assets removed without the Courts approval or that of the Insolvency Practitioner appointed as Administrator to oversee the Business.

Administration in detail

Administration should achieve one of three statutory objectives. These are:

  • To rescue the company as a going concern (which means placing the business in short term protection until it can be handed back to the directors)
  • To achieve a better result than the company being wound up (better than the business just going into liquidation first)
  • To realise security to pay off preferential or secured creditors (the methods the banks use to appoint an administrator)
  • One of the most useful aspects of Administration is that it’s very fast to get into and can be done without notifying creditors or shareholders. Once in Administration, the business is protected.

It is then up to the appointed insolvency practitioner (usually with the help and input of the directors) to decide what to do next. In no particular order, this may be one or more of the following:

  • Reduce the staff head count and close any unprofitable branches or divisions
  • Keep trading to finish any incomplete work to maximise value
  • Try to sell all or part of the business to a new owner
  • Sell assets and stock to realise funds to pay creditors

Within eight weeks of the date of the Administration order, the administrator will write to all creditors and set out their proposals (in a written report). They may then call a meeting of creditors within two weeks of that report to discuss the proposals and vote on the outcome.

The administrator has to call a meeting if more than 10% of creditors (by value) request one. The outcome of the meeting may be; carry on realising assets, move to liquidation or a company voluntary arrangement, dissolution or even a return to the directors if the business is now solvent.

A word of advice

Administration is a very fast way of protecting a business in trouble. The application to appoint an administrator can be made by:

  • The directors
  • The company itself
  • Creditors
  • Shareholders
  • A bank or lender with a floating charge (also known as a debenture)

What does Administration mean for my Business?

If a company is in Administration it means that the business has been protected by a Court order with the objective of:

  • Rescuing the business as a going concern
  • Getting a better return for creditors than liquidation
  • Repaying secured or preferential creditors
  • As a director, your powers end once the company goes into Administration.

How does administration work?

The most common reason to go into Administration is firstly to protect a business and give it time to work out the best solution. This may mean an organised close down or it may result in selling all or part of the business to a new owner or the existing management.
It also means that the business is under the control of the licensed insolvency practitioner appointed by the Court acting as the administrator.

Once in Administration, no creditor can take any action against the business without the Court’s or administrator’s permission. This includes; all suppliers, retention of title creditors, financial companies, HM Revenue and Customs, business rates, employee claims, banks, directors and shareholders.

The objective of Administration is to protect the business whilst the best solution is worked out. This is usually decided within the first eight weeks.
Administration normally lasts for up to 12 months but can be extended with creditor approval for a further six months or with the Courts approval for a further 12 months. Your director’s powers end on entering Administration, but you still have to co-operate with the administrator and if you fail to comply with their reasonable requests they can apply to Court to make you comply.

A word of advice

If you have any choice in who is appointed as administrator I would recommend meeting with them first to make sure you get on. You should also discuss with them the plan of action once they are appointed.

Is Administration right for my Business?

Administration is a quick and effective way to protect a viable business and stops all creditors taking action. You can get into Administration without the creditors or shareholder’s consent, which saves a lot of time.

Businesses and administration in detail

If your business is in financial difficulty then Administration can be a very effective way to protect it quickly. Administration means that no creditor (someone you owe money to) can take any legal or recovery action against your business. The objective is to protect the business whilst working out the best solution for all concerned.

Once in Administration, all of the business or just part of the business can keep trading, but sometimes employees are made redundant in order to slim down the business.
Administration lasts for up to one year but has to end eventually, leading to an exit route of either; handing the company back to the directors, a Company Voluntary Arrangement, liquidation or dissolution.

Administration is not right for your business if you just want to close – in that case liquidation is usually more suitable and cheaper.

A word of advice

If you need insolvency advice the earlier you talk to someone like us the better as you will have more options. We can help, contact us today.

Can Administration Stop my Business from Entering Liquidation?

Yes it can. Often administration (which is a Court order) is used to stop a liquidation process to give more time for a business to be saved or restructured. It can be used by limited companies and partnerships, but not sole traders.

Administration is a very powerful tool and can be used when a company is in debt and cannot see a way out. It is also a very fast process and a company can be put into administration within 24 hours.

It is often used by banks when they call in a loan if they have a debenture on the business. In this case they will quickly appoint an administrator to try and preserve the assets so the bank can be repaid.

Administration does not suit every situation, but it is very effective where there are substantial assets that need to be protected and secured, or if there is value and jobs to be rescued from trying to sell the business.

This may even mean that the business is sold back to the existing management/directors or a third party who has been in the wings before administration. Sometimes a pre-pack administration is used in this process, and this is a name given if the buyer was lined up beforehand.

Even after administration, a business can still go into liquidation. This usually happens within 12 months and occurs due to the way the law is written – its unsecured creditors’ claims can only be agreed and paid out by a liquidator.

A word of advice

If the bank hold a debenture and you want to put the company into administration you will need to give the bank five clear working days’ notice before you do so. They may decide to appoint their own administrator. You can check to see if the bank or any lender has a debenture by looking at Companies House under “mortgage index” for your company.

The Administration Process and the role of the Administrator

The insolvency practitioner that you choose will help you to apply for an Administration order to protect your company or partnership. After the Court approves the application the administrator then takes control and the directors lose all of their powers.

The role of the administrator

In most cases you can choose who to use as your administrator. Where you have a debenture the bank will insist upon an administrator of their own choice – typically they will want to use a larger firm.

To facilitate the administration process, the administrator has to be a licensed insolvency practitioner and once appointed as administrator is an officer of the Court.

It makes sense, if you can, to choose someone that you think you will get on with. They will help explain the process and help you to get the company or partnership into Administration. This can take between a day and a week.

It is usual for the administrator to ask for a lot of help from the directors if the business is to keep running as they will not fully understand how it operates. The administrator may agree for you to be paid, but this needs to be by prior agreement.

A word of advice

Be wary of firms saying ”they” can act as administrator. Only an individual can be an administrator and they have to have an insolvency licence not just a consumer credit licence – Ask questions of who you are going to use to make sure all is correct.

Pre-Pack Administration – What you need to know

A Pre-Pack Administration is where the buyer of the business has been agreed before the date of the Administration order. On the date of Administration the business is sold and then the majority of the creditors, shareholders and employees are notified after the event. Pre-packs were designed to preserve the value of the business by allowing a very quick sale.

The sale must be at a fair market value and this is often to the existing directors or shareholders which is completely legal.

When should a pre-pack be considered?

A Pre-Pack Administration is a very useful way to rescue a business that has a high value of goodwill that would lose value over a short period of time.
A good example of a business that is suitable for a pre-pack is one that relies on employees who have a detailed knowledge of the business and clients and customers who would leave if there was uncertainty. The overall objective to a pre-pack is that it should give a better return to creditors.

The benefits of a pre-pack administration

Pre-Pack Administrations are very quick to arrange which can stop clients or customers leaving, it also makes the change in ownership as seamless as possible. From the first meeting to the completed sale a Pre-Pack Administration can take just one week to complete.

The pre-pack process

When entering a Pre-pack you will need to choose a suitably qualified and experienced licensed insolvency practitioner. Your accountant or solicitor should be able to recommend one.
The licensed insolvency practitioner, who is the proposed administrator, will help you through the process. In summary the administrator will:

  • Request a balance sheet (financial snap shot) of your current finances including what you own and what you owe
  • Request information including; employees details, cash flow projections and reasons why the business has gotten into trouble
  • Instruct an agent to prepare a sales pack and market the business
  • This may mean full marketing with adverts in the press or more discreet marketing by just targeting known interested parties
  • Set a date for best offers and when they come in for the agent to recommend the best one
  • Instruct a solicitor to prepare a sale agreement unless this was a very small sale
  • The buyers would normally have solicitors acting for them as well

 

Once everything is agreed, the Administration order would be applied for and the sale would complete to the owner, usually on the day of Administration.

Usually the insolvency practitioner will talk to the largest creditors by value via telephone before the sale in order to seek their approval (although they cannot block the sale).

Once the sale has completed the administrator must write to all creditors within 14 days setting out what has happened and why the pre-pack route was chosen. This whole process can take from two week upwards.

A word of advice

Have all of your financial information together and make sure that you tell the insolvency practitioner of any impending winding up petitions and county court judgements so that they can deal with them directly.

Bankruptcy

What is Bankruptcy?

Bankruptcy means your financial affairs will be handled by a trustee in bankruptcy. The objective of the trustee is to sell your assets to repay your creditors. Your home or share in it may be sold to do this. Your credit rating will be very badly affected and it will stay on file for at least six years with credit reference agencies.

Becoming bankrupt

There are two reasons why you may be declared bankrupt. One is because you make yourself bankrupt and the other is where you are forced into bankruptcy by one of your creditors.
If you make yourself bankrupt you will do this to clear your debts and probably because you have very few assets. There is a Court fee and deposit to be paid of £700 to make yourself bankrupt.
Upon being made bankrupt, you will be asked to attend a meeting with a civil servant from the Insolvency Service who will initially act as your Trustee in Bankruptcy. This usually lasts about two hours and involves them asking you about your assets, liabilities, how you got into financial difficulty and lastly what you are earning now.
They will then assess which of your assets should be sold in order to pay back your creditors. They will also decide if you should make monthly income contributions from your wages or salary. If they do this, they still have to leave you enough income to live on.
This claim on your income, called an Income Payments Agreement, may last up to 36 months (even if your bankruptcy only lasts for 12 months).
Usually you will be automatically discharged from bankruptcy after 12 months even though you may still have a Trustee in Bankruptcy because assets still have to be sold.

A word of advice

If you go bankrupt and own or share a home, you may be forced to sell it to repay your creditors. There are unusual rules though that may protect you, especially if the house is jointly owned, so it usually worthwhile to take professional advice.

Bankruptcy – How does it work?

When you are declared bankrupt your assets rest with your Trustee in Bankruptcy who controls them prior to a sale. The purpose of selling the assets is to pay back all or part of your debts (known as creditors).

Bankruptcy in detail

There are two ways of going bankrupt. The first is where you declare yourself bankrupt and the other is where someone you own money too, makes you bankrupt because you have not paid them.

The first thing that happens when you are declared bankrupt is that you will receive a letter from the Insolvency Service (also known as the Official Receiver (“O.R”) asking you to come in for a meeting. The purpose of the meeting is to find out what happened as well as what assets you own and what you owe. You will also be asked about your income and your outgoings in case you are made to make an Income Payments Agreement (this is where you will be asked to pay a monthly installment for up to three years).

Bankruptcy normally lasts for 12 months. If your bankruptcy is not complicated, you may not here from the Insolvency Service again until they send you a letter advising you that you have been discharged from bankruptcy.

Whilst bankrupt, you will be restricted from being a director and certain other occupations such as a solicitor or policeman. It will also have an adverse effect on your credit rating that can last up to 6 years.

If you own a home with equity or a half share in a home with your spouse with equity, usually the home will be sold to pay your debts. There are special rules about working out your level of equity. For example if you have re-mortgaged to pay money into your business this may count as you using up your equity under the rules for “equity of exoneration”.

A word of advice

If you have any questions about bankruptcy, a good starting point is the Citizens Advice Bureau. If you have been made bankrupt after being in business it may be worth getting professional advice from a Licensed Insolvency Practitioner as they may be able to help you annul the bankruptcy.

My Business is Bankrupt – What are my options?

Although you may be deep in debt it may be possible to avoid bankruptcy (or liquidation if you are a partnership or company) if you have a viable business or assets to sell. However in some cases going bankrupt may be the best option just to give you a clean start. Bankruptcy only applies to individuals, sole traders and partners in a business.

Bankruptcy trigger points

There are usually a handful of trigger points that make a business realise it is in trouble. These are:

  • Being unable to pay the employees
  • The bank calls in its loans or overdrafts
  • A bailiff calls and ceases goods (or)
  • HM Revenue and Customs start bankruptcy proceedings

There are others trigger points as well such as a review of your monthly accounts with your accountant.

When your back is against the wall (with debts) the first decision to be made is whether or not the business could be viable in the future?

If it is viable, then there are a variety of options to avoid bankruptcy or liquidation. These are an Individual, Partnership or Company Voluntary Arrangement or a pre-pack administration. If not viable then the usual solution is bankruptcy or liquidation.

A word of advice

In both cases, it will be worth talking to a licensed insolvency practitioner first to make sure that you are choosing the right option for you and to understand any potential downsides – for example, losing your home, the effect on your credit rating or the implications of any guaranteed debts.

Bankrupt Businesses – How Insolvency Practitioners can help

Firstly the objective should be to avoid bankruptcy at all costs if you have a viable business. This is possible by using a Voluntary Arrangement or by early negotiation with key creditors.

Bankruptcy in detail

Bankruptcy usually refers to a sole trader or partner in a business who is made bankrupt. Sometimes it is used as a generic term to describe business failure. It is worth seeking good professional advice from a licensed insolvency practitioner before going bankrupt to see if there are other options. Your accountant or solicitor can usually recommend one.

Bankruptcy can happen in two ways; the first is someone making you bankrupt and the statistics say that the person most likely to do that is the tax man (HM Revenue and Customs). The second is where you pay the online application fee (about £700) and make yourself bankrupt.

Sometimes bankruptcy is the best option. For example where it is clear that the business is not viable it is a useful way to draw a line under the old business and legally stop bailiffs entering your home to remove assets. It also means that after 12 months your bankruptcy ends and the pre-bankruptcy debts are written off.

One of the main reasons to avoid bankruptcy is that if you have equity in your home it may be sold to pay your debts. This applies even if it is jointly owned with your spouse or you have young children. Again it is important to get advice early on as you may be surprised what can be achieved.

 

What is the Difference between Bankruptcy and Insolvency?

The term Insolvency is the term to cover all types of debts problems while Bankruptcy is the term for an individual (whether in business or not) who has been declared bankrupt. Therefore bankruptcy is a type of insolvency. Other types of insolvency for individuals include IVA’s, debt relief orders and debt management plans.
Bankruptcy is the term for when an individual is declared bankrupt by the Court because they are insolvent. People go bankrupt for two reasons; one is if their assets are less than their liabilities (so they owe more than they own) the second is where they are unable to pay their debts when they fall due.
A court will normally satisfy itself that the person being made bankrupt fits one of these conditions.

Insolvency

What is Insolvency?

Insolvency is where you or your business cannot afford to pay your debts either in full or on time.

A closer look at insolvency

There are two legal definitions of insolvency.
The first is where your liabilities (what you owe) exceed your assets (what you own).
The second is where you are unable to pay your debts as they fall due. This often comes as a surprise as there are a lot more people or businesses in this position than the first.

How to tell if you are insolvent?

The easiest way to tell if you are insolvent is to look at your most recent balance sheet. A balance sheet is a snap shot on a particular date of what assets and liabilities you have. If you owe more than you own you are classified as insolvent. Usually at the bottom of your balance sheet there will be a total, if this is in brackets (a minus figure), then that means you are insolvent.
Being unable to pay your debts (suppliers, HM Revenue and Customs) as they would normally be due is another sign that you are insolvent. In cases of disqualification, the Insolvency Service look for evidence of threatening letters and county court judgements to prove that you were insolvent and should have stopped trading instead of carry on and making the situation worse.

What options are open to insolvent companies?

The first thing that you should do is take professional advice from a licensed insolvency practitioner. If you don’t know one, usually your solicitor or accountant can recommend one.

Insolvency practitioners will review your finances and give you a list of alternative options. These should cover:

  • Continuing with business as normal but carefully monitor the situation
  • Try to raise more finance or funding
  • Stop trading now and go into liquidation
  • Use a Voluntary Arrangement to restructure your existing debts
  • Go into Administration to protect the business

Insolvency – We can help

If you are insolvent and would like to know what options are available to you, contact us today for a free consultation.

What are the Warning Signs of Insolvency?

The first indication that you are insolvent is often when your creditors, such as suppliers, the bank or HM Revenue and Customs start chasing you for money that you cannot pay.

How to spot the warning signs of insolvency

One common problem I come across as a licensed insolvency practitioner is where a bookkeeper or accountant holds back the bad news from a business owner/director who doesn’t have a complete understanding of the finances. Don’t let this happen to you. To avoid insolvency, make sure you know the reality of what you owe and to whom and when it has to be paid by.

The typical warning signs of the onset of insolvency are:

  • Suppliers sending you increasingly threatening letters
  • The bank bouncing cheques
  • HM Revenue and Customs threatening liquidation, bankruptcy or to send in a bailiff
  • A landlord threatening to distrain (which means cease your goods)
  • County court judgements and letters from the Courts
  • Receiving a 21 day statutory demand which must be dealt with in 18 days of service
  • A winding up petition or bankruptcy petition being served on you giving a date that you have to be in Court
  • HP and lease companies repossessing their goods

Typically, business owners put ‘their heads in the sand’ and don’t want to face the reality of the situation. They don’t want the embarrassment of failing or are afraid to tell employees, suppliers or even family.

Unfortunately hiding from the problems do not make them go away. Dealing with them and looking at what can be realistically achieved is the best option in all cases.
If you are worried about insolvency and want to get the best advice from an independent firm, contact us today. We can help you find a positive outcome.

How can I stop my Business from going Insolvent?

The best way to stop your business from going insolvent is to take advice from a licensed insolvency practitioner (“IP”) earlier rather than later. The facts an IP will need to know in order to help you are:

  • What do you owe?
  • What do you own?
  • Will the business trade profitably in the near future?

Insolvent processes

Insolvency ends up falling into two types of processes.
The main process is deciding whether you are going to let a creditor (someone you own money) push you into insolvency, or whether you take charge and choose insolvency as the best outcome to solve a problem.
The simple fact is that no one sets out to become insolvent – it happens because the business does not make enough profit over time or the owners take out too much from the business. The latter happens a lot.
In either case, it is not easy to ask for help, and who should you trust? The law is a minefield and there a number of unregulated advisers out there who say they can help, but can’t.
A good starting point is asking a decent solicitor or accountant to point you in the direction of someone qualified, and most of the time a trusted adviser will send you to a Licensed Insolvency Practitioner.
As Insolvency practitioners, we are intensively trained as well as carefully monitored to make sure we give solid, impartial advice.
We understand what can be achieved and everything that can’t – we can save a lot of wasted time and heart ache (and often wasted fees).
If you need advice, ensure you get it early on, and if you are unhappy with the advice you receive by all means opt for a second opinion.
If you are worried that your business is approaching insolvency, we can help. Contact us today.

Insolvency – What are my Options?

The earlier that you face the reality of an impending insolvency and take advice the more options you will have. You may not have to be declared bankrupt or forced into liquidation if you do not want to be.

Insolvency options for Limited Companies and Limited Liability Partnerships

The number of options open to you depends on how soon you deal with the impending insolvency and how viable your business is in a new shape or form.

If you are certain that it is not viable to continue and you want to close or do not wish to carry on but there is perhaps someone else that does or you want to be given time to pay and carry on then there are three main options:

  • Liquidation – Which means deciding to put the company into liquidation with the help of a licensed insolvency practitioner who will act as liquidator
  • Administration – Which means getting the business protected by a Court order whilst it is wound down or sold to a new owner
  • A Company Voluntary Arrangement (“CVA”) where a proposal is put to creditors to freeze the debt and a three to five year period is usually agreed in order to repay only part of the debt

If there is no money available at all to close the business then you may need to ask a supplier if they want to push you into compulsory liquidation( (as it is at no cost to you) but often directors want to avoid this route. Of course if you cannot pay a supplier, even if you don’t want to go into liquidation they can force you into it.

Insolvency options for Sole Traders and Partnerships

Again, the earlier you realise that serious financial problems are coming the more options and control you will have over the outcome.

The options for sole traders or partnerships are:

  • If you don’t want to carry on or there is not a viable business then usually it means bankruptcy However, where there are only a small number of creditors a deal can be reached to part settle and write off the balance of debts
  • If you want to carry on, then negotiate early and agree a ‘time to pay’ plan with creditors such as suppliers, HM Revenue and Customs and the bank or consider an individual or partnership voluntary arrangement (“IVA” or “PVA”).
  • If you cannot pay suppliers and just ignore them they are very likely to make you bankrupt or in the case of a partnership force it into liquidation.

As experienced licensed insolvency practitioners we can help your business through a Creditors Voluntary Liquidation. Contact us today for a free consultation.

Insolvency and Employee Rights

If you are laid off by an employer who is insolvent (which usually means they are going into Liquidation/Administration) you can make a claim from the Government for unpaid wages, unpaid holiday pay, redundancy and pay in lieu of notice. Usually claims take about two to four weeks to be processed.

Employee rights in more detail

Redundancy costs and how they will be paid are not just a worry for employees, but also a concern for employers that have been trading a long time. The longer you have been employed the more you are entitled to and sometimes business feel they cannot close or restructure because they cannot afford the redundancy.
It probably makes sense to define exactly what an employee can claim and also what the government step in and pay. In all cases, where the government steps in to pay, they use the Redundancy Payments Office (“RPO”) and cap the payment based on a maximum income rate.

There are five main categories of claim that can be made by an employee made redundant by an insolvent employer.

  • Unpaid arrears of wages. The RPO will step in and pay up to 8 weeks
  • Unpaid holiday. The RPO will pay up to 6 weeks or unpaid holiday pay
  • Redundancy. The RPO will pay
  • Pay in lieu of notice – This is where you have worked your notice and not been paid or were made redundant without the proper notice
  • Unpaid Pension Contributions up to 12 months.

The redundancy you can claim is based on your age and the number of complete years worked for the same employer (including under TUPE transfers). It is a complex calculation, but the maximum claim is for a person over the age of 41 who has worked 20 years. They can claim 20 x 1.5 weeks = 30 weeks’ pay. For under the age of 41 it is a week a year worked.

Pay in lieu of notice is based upon what’s in your contract and statute. It means you should have been given notice if your employment is ending and time to find a new job whilst working out your notice. Quite often insolvent business close without any warning at all, which is when you will be entitled to notice pay.
The minimum statutory notice is one week in the first two years of working then a week per year up to a maximum of 12 weeks’ notice.

A word of advice

When working out notice and redundancy, you add the notice period you should have been given to the length of time worked. For example if you have worked for an employer for 23 months and you are entitled to one months’ notice this takes you to 24 months and you will therefore be entitled to a claim based on 2 years.

What are the Consequences of Insolvency?

Insolvency will probably mean that your business will cease trading and if you are a limited company go into liquidation. If you are a sole trader or partnership you may go bankrupt and lose your personal assets such as your home.

Consequences of insolvency for Limited Companies and LLPS

For limited companies (or limited liability partnerships known as “LLP’s”) the consequences of insolvency will mean that the business will go into liquidation and stop trading or go into administration and be sold (maybe to a new owner). In some cases the outcome may be a company voluntary arrangement.
In the event of liquidation or administration, the insolvency practitioner instructed to deal with your company has to make a report to the Insolvency Service and in certain cases this may result in the directors being banned for a period of up to 15 years.
In addition, the directors or a third party may be liable for personal guarantees they have given to the company’s creditors if the business goes into insolvency. This is typically the bank who may have been given guarantees for a business loan or overdraft.

Consequences of insolvency for Sole Traders and partnerships

For sole traders or partnerships (non LLP’s) the business owners are liable for the debts and their personal assets are at risk of being sold to repay their debts. This includes debts due to suppliers, HM Revenue and Customs, faulty work to customers and anyone else owed money by the business.
In addition it is possible in certain cases for bankrupted business owners to face bankruptcy restriction orders (“BRO’s”) if they have misbehaved whilst running the business. It is the Insolvency Service who investigates and takes these BRO actions against bankrupt sole traders or partners in a business.

Contact us today

If you are worried about what action may be taken against you, get good advice early on from a licensed insolvency practitioner, contact us for a free consultation.

Insolvency FAQ

Insolvency can be a complex term to understand, to help you understand the different elements, we have created a list of frequently asked questions. Our insolvency practitioner is able to offer advice on all aspects of insolvency, from company to voluntary insolvency processes. As a licenced insolvency practitioner based in Plymouth, St. Austell, Truro and Penzance we are readily available to many South West businesses.

Q: What does insolvency mean?

A: A business is insolvent when it is behind in its payments to employees/HMRC/suppliers/financiers and have no clear opportunity in the near future to get back on track. Evidence of insolvency includes: tightening of cash flow, creditors sending chasing letters, bailiffs and/or court enforcement.

Q: What is the difference between liquidation and administration?

A: Liquidation refers to the process of a business ceasing trade and turning its assets into cash. This marks the end of the company, however, the business may survive this process.

The three types of liquidation processes:

  • Creditors’ Voluntary Liquidation (CVL)
  • Compulsory Liquidation
  • Members’ Voluntary Liquidation

The first two are used to tie up and close an insolvent company, Members’ Voluntary Liquidation is used to legally close down a solvent company that no longer has a purpose.

Administration is an option for businesses that have a viable future and reliable cash flow, it is used to protect the company and its assets from aggressive creditors whilst allowing time for restructuring. It is often regarded as a better alternative than liquidation, it commonly increases unemployment whilst removing any chance of a successor business.

Q: Do I Have To Use A Licensed Insolvency Practitioner?

A: Licensed Insolvency Practitioners are the only people who can deal with voluntary liquidations of companies. Liquidators can only act in their personal names; a company can not be a liquidator.

What you should be aware of, many have been offered liquidation services from a person who is not a licensed insolvency practitioner. Many of these are “finders” or “ambulance chasers” looking to make a fee for passing you over to an undisclosed Insolvency Practitioner. Often they will tell you what you want to hear and not give experienced, licensed tailored advice. We recommend always going directly to a Licensed Insolvency Practitioner.

Q: What does Cash Flow or Balance Sheet Insolvent mean?

A: When a company is falling behind with payments, with no clear opportunity to get back on track, then the company is likely to be insolvent.

Two tests can be undertaken to determine an organisation’s financial viability: the cash flow test and the balance sheet test.

The Cash Flow Test: This test checks whether the company can meet its obligations. Such as paying its debts when they are due.

The Balance Sheet Test: This test reviews the assets and liabilities of an organisation. If the asset value is less than outstanding liabilities, the company will be considered insolvent.

Our Licensed Insolvency Practitioners can undertake both of these tests and help to advise should your business be found to be insolvent.

Q: How much does liquidation cost?

A: Contact us to learn more about the fees we charge.

Q: What happens to the assets of a company during liquidation?

A: Assets will be sold in order to raise funds for the benefit of the company’s creditors. If financed items are present, with equity in them, the liquidator may also be able to sell these to pay off the outstanding finance and utilise any surplus funds by adding them to the overall liquidation collection. An agent will be required to value all assets and determine which have sufficient value to be sold at an auction and which should be abandoned at the premises.

The agent will also review alternatives to an auction, such as selling of assets to third parties.

All funds raised from the selling of company assets will be utilised within the liquidation and then distributed to creditors in the order laid down in the Insolvency Act 1986.

Third party assets will be returned and cannot be sold.

Q: How can I turn my struggling company around?

A: Many directors may believe that when a company becomes insolvent, it is the end of their business and liquidation must be initiated. However, there are other options available for insolvent situations that can help to turnaround a business.

Our Licensed Insolvency Practitioners are able to help you to explore options and decide if an Independent Business Review is something that you require before proceeding to explore your options.

Q: How do I close down a Limited Company?

A:  The process of closing a Limited Company depends on whether the company is solvent or insolvent. It is important to not lose sight that we offer business rescue advice and this may be a possibility for you.

If you are closing an insolvent Limited Company then a Creditors’ Voluntary Liquidation (CVL) is often the best option. Our Licensed Insolvency Practitioners are able to help you navigate this process.

If the Limited Company being closed is solvent then Members’ Voluntary Liquidation (MVL) is the best option. Allowing for a tax-efficient way for shareholder contributions above £25,000 to receive capital tax treatment rather being assessed as income.

If you would like to get in contact with us to discuss any of the factors above please click here.

Liquidation

What is Compulsory Liquidation?

Compulsory liquidation is controlled by the UK Courts and usually it means an unpaid creditor has asked the Court to issue a winding up order against your company because they have not been paid. At the Court hearing, if the judge agrees and the company is forced into liquidation, an Official Receiver (a civil servant) will be appointed the liquidator.

Compulsory liquidation in detail

There are various parties that can apply to have a company wound up by the Court, but more often than not it is by a creditor (person or business that you owe money to). For Compulsory Liquidation to be considered the creditor has to be owed a minimum of £750. The most common creditor to issue a winding up petition that leads to Compulsory Liquidation is H M Revenue & Customs.
It is a common myth that the creditor has to first serve a Statutory Demand, although most do this as it gives the company or LLP the right to dispute the debt by having the Statutory Demand set aside. Otherwise there is a risk of getting to Court and the debt disputed. The judge stops the winding up and awards legal costs to the company for wasted time.
To be compulsory wound up means that the judge at the Court hearing actually orders the company to be put into liquidation. Both sides can attend and argue their case. Often the judge will consider an adjournment giving the company time to prepare a full defence or be given time to pay, although it would be risky to rely on that.
As soon as the company goes into liquidation the director’s powers cease and the Official Receiver from the Insolvency Service will take over. They write to the directors within a very short time requesting the directors fill in a questionnaire and attend a meeting.
In due course, an independent licensed insolvency practitioner may be appointed liquidator. This usually happens if creditors request it or the case is complex.
In a Compulsory Liquidation the government charge a fee for every case. This fee is fixed at £6,000 and is known as the DTI ad-valorem fee or Secretary of State fee. It is another reason why directors may try and avoid Compulsory Liquidation.

A word of advice

If your company or LLP is served with a winding up order you must be given 14 clear days written notice of the Court hearing date. A word of warning – this notice is advertised in the London Gazette – your bank will see it and freeze your bank account. If you dispute the debt you must get on and deal with it.
If your business is facing Compulsory Liquidation or you are in doubt, contact us today. We can help you find a positive outcome.

What is a Creditors Voluntary Liquidation?

Creditors Voluntary Liquidation is where a business can no longer be made profitable or the owner does not wish to continue trading.
Directors (partners in an LLP) chose a licensed insolvency practitioner to assist them with the winding up of the company or LLP. It means the business will cease trading, the assets are sold, staff made redundant and creditors notified. It is often shortened and called a CVL.
 

Creditors voluntary liquidation in detail

When a business owes more than it owns or is unable to pay its debts as they fall due then for legal purposes it is insolvent. In this situation, the directors need to take professional advice from an accountant or solicitor who often refers them to a licensed insolvency practitioner, such as Neville & Co.
 
The process of making a Creditors Voluntary Liquidation happen is usually controlled by the licensed insolvency practitioner chosen by the directors.

The insolvency practitioner will usually help with the CVL process and the following is a summary of what happens in the two weeks up to the date of liquidation:

  • All the business staff are laid off and the business premises closed.
  • The insolvency practitioner prepares all the legal paperwork for the directors, letters are sent to all the shareholders notifying them of a proposed meeting to pass a resolution making the company go into liquidation.
  • Letters are sent to all creditors notifying them of the Shareholders meeting and that creditors can vote on the process by either a decision via correspondence, a decision via an electronic voting procedure, a decision via the deemed consent process or via a decision during a virtual meeting. Creditors can object to the chosen Liquidation procedure and insist on a physical meeting to be called to consider resolutions on the choice of Liquidator/s to be appointed under what is known as the 10/10/10 rule. Either 10% of creditors (in value) or 10 individual creditors or 10% of creditors (in number) can insist on a physical meeting to be held instead.
  • The company goes into liquidation during the meetings.

After the shareholders and creditors meetings the liquidator takes control. Their objective is to:

  • Realise the assets which usually means selling plant, machinery and vehicles at auction.
  • Collect in any book debts.
  • Close bank accounts.
  • Investigate what happened.
  • Ask the directors to fill in questionnaires to help with that investigation.
  • File a report to the Department for Business Innovation & Skills within three months on the director’s conduct.
  • Write to creditors and agree their claims.

The liquidator will try and pay a return from the assets to creditors. This is called a dividend.
Finally, they will close the case when all matters have been dealt with.

 

How long does a creditors’ voluntary liquidation last?

A normal CVL will last about one year, but more complex cases can stay open indefinitely. In particular a case may be kept open to deal with ongoing litigation.
 

A word of advice

Make sure when choosing a suitably qualified and experienced liquidator that he or she is a properly “Licensed Insolvency Practitioner”. There are a number of firms advertising themselves as “licensed” but all they have is a consumer credit licence. Their objective can sometimes be to just charge you a fee and pass you onto someone else.
As experienced licensed insolvency practitioners we can help your business through a Creditors Voluntary Liquidation. Contact us today for a free consultation.

Advantages and Disadvantages of Liquidation

Liquidation is a very useful way of wrapping up a limited company that is no longer able to trade due its debts. It should not be used where the company is solvent, nor when the business in the limited company can be restructured or saved (administration or a CVA is usually a better option here).
 

Why put your company into liquidation?

Reasons for liquidation include:

  • You cannot pay your debts as they fall due.
  • Your liabilities exceed your assets.
  • You are making losses and you don’t think you can turn the situation around.
  • You are finding it hard to cope with the stress and pressure of trading.
  • You are worried that trading is in decline and you will be liable for wrongful trading if you carry on.
  • Someone else will deal with the creditors and all their claims.
  • Employees owed redundancy, unpaid salary or holiday pay and notice pay can claim this from the government RPO fund. Directors can usually claim as well.

Reasons against liquidation include:

  • The business can pay off all its debts within a short period of time.
  • The business may be insolvent, but has a value to someone else so should be sold first.
  • If you are a director or shadow director with a poor compliance history or you have been disqualified as a director you should very carefully consider your options. You may be committing a criminal offence.
  • A Company Voluntary Arrangement or pre-pack administration may be better options.
  • You can raise the money to pay off all the debts and do not want the stigma of having been the director of a liquidated company.

A word of advice

Insolvency is a legal minefield. If you are in doubt seek good legal advice from a qualified and experienced solicitor who specialises in insolvency or a licensed insolvency practitioner like our firm. Avoid unlicensed debt advisors whose incentive may not necessarily be to help you.

What is a Section 110 Scheme of Arrangement?

This is a solvent liquidation process that allows you to reorganise a company into two or more new companies in order to allow the trade to be split or the ownership of the shares to be split. It is often used in shareholder disputes.

Section 110 scheme of arrangement in detail

A Section 110 Scheme of Arrangement is a very useful way of reorganising a company between types of trade or classes of shareholders. Sometimes it is used where one type of trade is low risk whilst another type is high risk. A good example of low risk is a company owning property that is let out, compared to house building which can be high risk.
Here are two further examples:
Example one – How to split the company into two trades. A business might have two types of trade, for example – hiring and selling cars. The business can be split into two new companies one just dealing in buying and selling cars and the other in just hiring cars. The old company is put into liquidation using a Members Voluntary Liquidation (this is a Solvent Liquidation) and the respective assets transferred to each new company.
There are various tax conditions to comply with, but essentially as long as the shareholders stay the same this can be treated as a no gain/loss transfer.
Example two – Shareholders wanting to go their own way.
Two families own a company and decide they can no longer work with each other. They can decide to liquidate the company using a Members Voluntary Liquidation and split the business into two with each family owning one company outright. The old company is dissolved after the asset transfer and the two new companies are separate legal entities.
This can be done without paying any tax on the disposal of shares.

Tax tip

It would be normal for you or your accountant to write to your tax office and get prior clearance outlining the ownership of the old company and the proposed ownership and structure of the new ones. They usually take up to three months to reply.
For further information regarding a Section 110 Scheme Arrangement or any other form of liquidation, contact us today.

What Does Liquidation mean for my Business?

In simplistic terms, if a business goes into liquidation it means:

  • The business stops trading with immediate effect
  • The employees are all made redundant
  • The assets of the business are sold to pay creditors

In order to liquidate a company, a licensed insolvency practitioner will be required. It usually takes around ten days to put a company into liquidation.

Find out more…

  • A Closer Look at Liquidation
  • How Long Does Creditors Voluntary Liquidation Take?
  • How Long Does Compulsory Liquidation Take?
  • The Liquidation Process
  • A Word Of Advice

A closer look at liquidation

There are two types of insolvent liquidation. The first is a Creditors’ Voluntary Liquidation (CVL) and is where the directors choose to put the company into liquidation. The second type of liquidation is where the company is pushed into liquidation by creditors at a Court hearing. This is known as Compulsory Liquidation.
In practice, directors usually try and avoid compulsory liquidation as the liquidator is appointed by the Court, which means they have less control of the situation.

How long does creditors voluntary liquidation take?

Creditors’ Voluntary Liquidation usually takes between one and two weeks to complete. A Creditors Voluntary Liquidation falls into three stages:

  • The majority of the company’s board sign a resolution to go into liquidation
  • Shareholders are then given notice of an extraordinary general meeting to approve this decision. 75% of the shareholders that vote at that meeting will need to agree to the liquidation. Those that don’t vote don’t count
  • Letters are sent to all creditors notifying them of the Shareholders meeting and that creditors can vote on the process by either a decision via correspondence, a decision via an electronic voting procedure, a decision via the deemed consent process or via a decision during a virtual meeting. Creditors can object to the chosen Liquidation procedure and insist on a physical meeting to be called to consider resolutions on the choice of Liquidator/s to be appointed under what is known as the 10/10/10 rule. Either 10% of creditors (in value) or 10 individual creditors or 10% of creditors (in number) can insist on a physical meeting to be held instead. The company goes into liquidation during the meetings.

From the day the directors agree to liquidate, it takes around 14 days to put a company into creditors’ voluntary liquidation. If 90% or more of all shareholders agree to short notice, then the liquidation can happen within seven days (this is the minimum statutory notice period to creditors).

How long does it take?

A compulsory liquidation is a Court driven process. From the initial threat from creditors to start the process, it can take two or three months before the compulsory liquidation actually happens.

Stages:

  • A creditor usually serves a statutory demand that gives you 21 days to pay (or 18 days to set it that demand aside).
  • Once 21 days have expired the creditor can then apply to the Court for a Winding Up hearing to take place.
  • Depending on how busy the Court is, it can take a few weeks to get the hearing date.
  • The company to be liquidated must be given 14 days written notice of the hearing.

The liquidation process

The purpose of liquidation is to get in, release all the assets and then pay a return to creditors so they get some of their money back.
All the company’s assets will be sold and they will no longer be able to trade. The liquidator deals with the sale of the assets, agreeing creditors’ claims and working out what return goes to creditors. This can take between three months to one year.
During this period, the liquidator has to send written annual reports to creditors, along with a final report explaining what has happened. The report includes details of what has been sold, for how much, how it has been paid and how much will be paid back to creditors. It also set out the liquidator’s fees and disbursements.

A word of advice

If you think the type of liquidation your business faces does not matter, think again as the problems and elements associated with compulsory liquidation include:

  • It is a slower process
  • There is no control after the event as to how assets are sold, and they cannot be bought back easily
  • The liquidator cannot be chosen
  • The government charges fees for its costs, including a fixed £6,000 Secretary of State fee on every Liquidation.

Liquidation – we can help

Liquidation and whether it is a good or bad solution depends on your circumstances. You should always take professional advice before making a decision. For a free consultation or to talk to our insolvency experts contact us today.

How Do I Stop Compulsory Liquidation happening to my Business?

Compulsory Liquidation is where a creditor petitions or forces a company into liquidation to reclaim monies owed or where the directors petition themselves due to a lack of funds.
In most cases, if your business is being pushed into liquidation, it is normally because you owe someone (a creditor) more than £750. The easiest way to stop the process is simply by paying them in full. The alternatives are a Court hearing if you dispute the debt, asking for an adjournment at the first Court hearing or by putting the company into Administration.
A winding up hearing is a Court hearing to decide whether or not your company should go into Compulsory Liquidation.

How Does a Creditor put a Company into Liquidation?

Firstly there a few stages a creditor (someone you owe money to) will have to go through to put you into liquidation. These are:

  • Invoice you or have paperwork to prove a debt
  • Issue a County Court Judgement (“CCJ”) for the unpaid debt. This means a Court hearing and it gives you a chance to dispute the debt or not. If you lose and do not pay in 14 days a CCJ will be entered against you
  • If creditors get a CCJ against you they can then ask the Court to enforce it by sending in a bailiff to remove your goods
  • Following this, creditors should then issue you with a statutory demand. You have 21 days to then pay or 18 days to dispute it. A statutory demand is usually issued after a CCJ, but it can be issued instead of one
  • If the debt owed is more than the likely assets your business has then they could issue a winding up petition. This means applying to the Court for a hearing date to decide if the company should be wound up
  • You must be given 14 days written notice of the date of the winding up

A creditor has to go through these steps, all the while serving letters to you at your registered office. Not only this, the creditor has to supply £2,000 in Court as a deposit.

The most usual creditor to issue a winding up order is HM Revenue and Customs. They are not put off by the long process. They understand it and can afford the £2,000 deposit.

A Warning about Compulsory Liquidation

Even if you pay off a debt owed in full before the final Court winding up hearing, another creditor that you are owed money to can step into the original creditor’s shoes and continue the hearing.

How Can You Prevent Compulsory Liquidation

The best ways to stop a compulsory winding up are:

  • If you agree the debt and you have the funds pay it off in full
  • If you agree the debt but only have part of the money available, you can try and do a deal with the creditor to withdraw the petition and pay them back in instalments
  • Consider hiring a solicitor
  • You can go to Court and fight the claimed debt yourself at the hearing but this is risky. If you lose you will be put into liquidation
  • You can go to Court and ask for an adjournment. This is easier on the first hearing but there is no guarantee the Court will accept this
  • Offer to put your own company into liquidation. The creditor might accept this as it will save them the £2,000 deposit
  • Apply to go into Administration. This is often heard as an application at the same time as the winding up hearing

If your business has cash flow problems and are worried about Compulsory Liquidation, we can help. Contact us today for a free consultation.

How to safely Wind Up a Limited Company with Assets

Since the 1st March 2012, a company with assets above £25,000 has had to use a Member’s Voluntary Liquidation (MVL) if it wants to treat the money returned to shareholders as capital rather than income.
The main advantage to an MVL has been to save tax. Money paid to shareholders of a trading company will usually only be charged at 10% capital gains tax. If the same money is paid out as a dividend the tax rate could be as high as 45%.
Another advantage to a formal winding up using an MVL is that a notice is placed by the liquidator in the London Gazette which effectively gives any creditors or potential creditors a last chance to make a claim.
Once the date for the final creditor claims has passed then it will be too late for any contingent creditors to make a claim. That is very useful for a limited company that has been going a long time and may have some minor problems in the past that have never crystallised.

Find out more… 

  • Members Voluntary Liquidation in Detail
  • Key Points to Using Neville & Co for your Members Voluntary Liquidation
  • A Word of Advice

Members voluntary liquidation in detail

A Members Voluntary Liquidation needs a licensed insolvency practitioner to be the liquidator. The term “members” means “shareholders” so it is a liquidation driven by the owners of the shares.
Usually the proposed liquidator will prepare all the statutory paperwork and meet or discuss the process with the director/shareholders. A fee is usually agreed in advance for the liquidation.

The important issues for directors to consider for an MVL are:

  • Getting an accurate up to date balance sheet showing all the assets and liabilities. This is needed for the Declaration of Solvency.
  • Having available all the names and addresses for shareholders (the members).
  • To reduce the liquidator’s costs, it is advisable to have the company in as simple a form as possible. This means having collected in all the assets and sold them, laid off staff and paid out creditors (suppliers) where possible.
  • Often the only creditor left unpaid at the start of the liquidation is H M Revenue & Customs for corporation tax.

Key points to using Neville & Co for your MVL

As experienced and licensed insolvency practitioners we are expertly equipped to deal with Members Voluntary Liquidations and have found the following very important to our clients:

  • We will pay the shareholders out fast – usually within seven days.*
  • Aim to get you to do most of the work in order to reduce our fees.
  • We can fix the fee for liquidation.
  • We will charge for the insolvency bond and statutory adverts.
  • We don’t charge for letters/stamps/storage boxes.

*We will need your accountant to confirm the company tax bill to do this.

A word of advice

Make sure when choosing a suitably qualified and experienced liquidator that he or she is a properly “Licensed Insolvency Practitioner”. There are a number of firms advertising themselves as “licensed” but all they have is a consumer credit licence. Their objective can sometimes be to just charge you a fee and pass you onto someone else.
If you would like to know more about Members Voluntary Liquidation contact us today. We can help you find a positive outcome whatever your situation.

How to Wind Up a Company

When a limited company is insolvent it can be wound up using a Creditors Voluntary Liquidation where you chose an insolvency practitioner like us to act as liquidator. Alternatively a company can also be wound up by the Court. The Court route is used for companies with very few assets or when a company is wound up by an unpaid creditor. The liquidator is the Official Receiver.
A limited company is a separate legal entity in its own right. When it gets to the end of its useful life or can no longer carry on trading due to its debts, it can be dealt with by winding up. This effectively will get rid of the company.
There are two main ways to wind up a company. One is to ask a Licensed Insolvency Practitioner, like us, to assist the directors in calling the meeting of shareholders and creditors and passing the resolutions to liquidate. This takes about 2 weeks. Once the company is in liquidation we would act as the liquidator and realise any assets and agree creditors’ claims. The company no longer trades after liquidation and all employees will be made redundant. This is called a Creditors Voluntary Liquidation (CVL).
The second way to wind up a company is to use the Court route called compulsory winding up. This involves the Court hearing a petition to wind up the company and then issuing an order accordingly. The request for compulsory winding up can be made by any creditor owed over £750 or even a director. Once a company is in compulsory liquidation the initial liquidator will always be the Official receiver local to the company. When in liquidation the company cannot trade and all the staff will be dismissed.
Compulsory liquidation is a much slower process and can take 2-3 months, rather than just 2 weeks for a CVL.
Two other quick points to mention – a defunct company with no assets or liabilities can be ‘wound up’ by using section 652 of the Companies Act. This means filling in a form and sending a £10 fee to Companies House to have the company removed from the register.
If the company being wound up is solvent, then it is normal to use a Members Voluntary Liquidation. We can help you find a positive outcome whatever your situation – contact us today.

What Does Liquidation mean for Directors?

When a company goes into liquidation the directors’ powers immediately cease. From this point onwards directors can no longer sign cheques, sell assets or issue orders to staff. They will also not be paid, although they may be asked to assist the proposed liquidator.

Liquidation and directors in detail

When the directors decide that a company needs to go into liquidation they will chose a licensed insolvency practitioner to assist them through the process.

Usually within a one to two week period before liquidation the proposed liquidator will ask the directors to assist with the following:

  • Produce a detailed list of every supplier owed money. These are known as creditors.
  • Produce a list of the money due into the company for unpaid sales. These are known as debtors.
  • A list of company assets including where they are kept.
  • A list of all the employees including pay details.
  • Details of the company’s bankers.
  • VAT, PAYE and corporation tax reference numbers and amounts owed.
  • Copy hire purchase and loan agreements.
  • Provide accounting records for the last three years of the business.
  • Draft a company history.

The proposed liquidator will also write to the directors asking them to stop trading and ensure that the assets of the business are preserved for the creditors as a whole.

In the final days before the meeting of members (shareholders), the liquidator will ask the directors to approve the statement of affairs (similar to a balance sheet). This is a snap shot of what the company still owns and what it owes. It is a very important document and if the directors intentionally get this wrong they can be prosecuted.

Creditors’ and shareholders’ meetings

It is important that the directors assist the liquidator in their analysis of the business as every aspect is required in preparation for the shareholders and creditors decision procedure.

The insolvency practitioner prepares all the legal paperwork for the directors, letters are sent to all the shareholders notifying them of a proposed meeting to pass a resolution making the company go into liquidation.

  • Letters are sent to all creditors notifying them of the Shareholders meeting and that creditors can vote on the process by either a decision via correspondence, a decision via an electronic voting procedure, a decision via the deemed consent process or via a decision during a virtual meeting. Creditors can object to the chosen Liquidation procedure and insist on a physical meeting to be called to consider resolutions on the choice of Liquidator/s to be appointed under what is known as the 10/10/10 rule. Either 10% of creditors (in value) or 10 individual creditors or 10% of creditors (in number) can insist on a physical meeting to be held instead.
  • The company goes into liquidation during the meetings.
The company is officially in liquidation once the meetings are over. It is at this point that all the director’s powers all cease and the liquidator then takes over.
Although the directors are no longer employed it is usual for the liquidator to ask the directors for further help on various matters, including tracing assets, helping collect disputed debts or answering questions about the business in the lead up to liquidation.

A word of advice

Whether it is a good or bad solution depends on your circumstances. You should always take professional advice before making a decision. For a free consultation or to talk to our insolvency experts contact us today.

Members Voluntary Liquidation

What is a Members Voluntary Liquidation (MVL)?

Members Voluntary Liquidation (MVL) is a voluntary procedure where a company with net assets over £25,000 is put into liquidation. The money paid out to shareholders counts as capital gain and not income which is taxed at a much lower rate. Members Voluntary Liquidation is a very tax efficient way of getting money out of a company and is usually done for tax purposes.

Find out more…

  • Members Voluntary Liquidation in Detail
  • Statutory Declaration of Solvency
  • The Members’ Voluntary Liquidation Process
  • Key Points to Using Neville & Co for your Members Voluntary Liquidation
  • A Word of Advice

Members Voluntary Liquidation in detail

A Members Voluntary Liquidation needs a licensed insolvency practitioner to be the liquidator. The term “members” means “shareholders” so it is a liquidation driven by the owners of the shares.
Usually the proposed liquidator will prepare all the statutory paperwork and meet or discuss the process with the director/shareholders. A fee is usually agreed in advance for the liquidation.

The important issues for directors to consider for an MVL are:

  • Getting an accurate up to date balance sheet showing all the assets and liabilities. This is needed for the Declaration of Solvency.
  • Having available all the names and addresses for shareholders (the members).
  • To reduce the liquidator’s costs, it is advisable to have the company in as simple a form as possible. This means having collected in all the assets and sold them, laid off staff and paid out creditors (suppliers) where possible.

Often the only creditor left unpaid at the start of the liquidation is H M Revenue & Customs for corporation tax.

Statutory declaration of solvency

An MVL should only be used where all creditors have been paid in full or will be paid in full within 12 months from the date of liquidation.
The liquidator will ask the directors to sign a statutory declaration of solvency and warn them that it can be a criminal offence to sign a declaration knowing that creditors cannot be paid out in full within 12 months.

The Members Voluntary Liquidation process

The insolvency practitioner will draft all the paper work and ask for the director’s help in preparing the statement of affairs (balance sheet). A date is then agreed for the proposed liquidation to take place.
You do not need to hold a creditors meeting to put a company into Members Voluntary Liquidation. You do however, have to call a shareholders’ meeting with at least 14 days notice unless at least 90% of the shareholders have consented to short notice. In that case the meeting can be held right away.
Once in liquidation, the liquidator is responsible for the company. They will take charge of the assets and bank account and agree any final creditor’s claims.
The liquidator will then make a payment to the shareholders based on the net assets left in the company. The liquidator may pay the majority of the money out leaving a small balance to pay when the MVL is closed.
MVLs normally last a short period of time and no more than 12 months. If a MVL lasts over 12 months and there are creditors who have still not been paid, then the case will be converted to a Creditors Voluntary Liquidation. This has serious consequences for the directors (it may be considered a criminal offence) and is also likely to mean the liquidators fees will increase substantially.

Key points to using Neville & Co for your MVL

As experienced and licensed insolvency practitioners we are expertly equipped to deal with Members Voluntary Liquidations and have found the following very important to our clients:

  • We will pay the shareholders out fast – usually within seven days.*
  • Aim to get you to do most of the work in order to reduce our fees.
  • We can fix the fee for liquidation.
  • We will charge for the insolvency bond and statutory adverts.
  • We don’t charge for letters/stamps/storage boxes.

*We will need your accountant to confirm the company tax bill to do this.

A word of advice

It is a criminal offence for directory to sign a statutory declaration of solvency knowing that they cannot pay creditors in full within a 12 month period.
If you would like to know more about Members Voluntary Liquidation contact us today. We can help you find a positive outcome whatever your situation.

What are the costs of a Members Voluntary Liquidation?

Members Voluntary Liquidation (MVL), also known as Solvent Liquidation is a voluntary procedure that winds up solvent business affairs. Members Voluntary Liquidation is an efficient way of turning reserves (cash) into capital gain and thereby pay just 10% tax.
There are three costs associated with Members Voluntary Liquidation; the liquidators fee, a bond and the statutory advertising. Liquidators can agree to fix these fees and costs.

Find out more…

  • Members Voluntary Liquidation Costs in Detail
  • Liquidator Fees
  • Liquidator’s Bond
  • Statutory Advertising in an MVL
  • A Word of Advice

Members voluntary liquidation costs in detail

Liquidators should be able to quote you a fixed fee to liquidate the company as an MVL. It will be based on:

  • The value and complexity of the assets held
  • How much is unpaid and owed to creditors
  • How many shareholders there are to pay out
  • How up to date are you with the financial records

The simpler you can make the company before instructing the liquidator the better. It is usually best to have sold all the assets and have them in a bank account as well as having paid off all the creditors.

It’s obvious really – the simpler you can make it, the less the liquidator will charge.
There is no need to prepare the annual accounts from the last year end to the date of liquidation.

Liquidator’s Fees

The liquidator’s fee should cost from about £2,500 plus VAT upwards. That is the very simplest liquidation. Some liquidators like our firm, Neville & Co, will quote a fixed fee to act as liquidators for your business.

Liquidator’s bond

The Liquidators Bond is a legal requirement for every insolvency practitioner to have for every individual case they take on. It is charged on a sliding scale based on the assets of the company and they should make no profit on it.

Some typical examples of the bond cost are:

£100,001 – £250,00 – £310
£250,001 – £500,000 – £420
£500,001 – £1,000,000 – £560
£1,000,001 – £2,000,000 – £895
£2,000,001 – £3,500,000 – £1,120
£3,500,001 – £5,000,000 – £1,345
Over £5,000,000 – £1,620

Statutory advertising in a members voluntary liquidation

A liquidator is under a statutory duty to file papers with Companies House (who make no charge) and send copies of resolutions and notices to the London Gazette.
The London Gazette charge for this statutory service which is typically £280 per case. It includes filing the resolution showing the date the liquidation has happened, who the liquidator is and how anyone should make a claim.
A notice will also be filed when the company liquidation has come to an end.

A WORD OF ADVICE

Be careful not to agree to a fee based on time costs (an hourly rate) if you can avoid it. You should always take professional advice before making a decision. For a free consultation or to talk to our insolvency experts contact us today.

Tax Advice for Members Voluntary Liquidation

Members Voluntary Liquidation (MVL) is an efficient way for solvent companies to turn reserves into capital gain and pay just 18% tax. Shareholders who own more than 5% of the ordinary share capital of a company can usually claim Entrepreneurs Relief. This means they pay capital gains tax at just 10% on the first £10 million they receive from the sale of their shares. It is worth checking this first though with your tax advisor or accountant before you start the MVL process.
To qualify for Entrepreneurs Relief it is worth noting that there is a three year time limit from ceasing to trade to the company funds being paid out.
Don’t get caught by the tax settlements legislation. MVLs are designed to be used on selling up and retiring from that type of business. If you start the same business again you may lose the Entrepreneurs Relief. The tax man may think the “Goodwill” of one business has been transferred from the old one to a new one and will tax you on it.
Sometimes companies use a Section 110 Scheme of Arrangement to re-organise the ownership whilst saving tax. This is a type of MVL.

Can I Put my Sole Trader Business, Partnership or LLP into a Members Voluntary Liquidation?

In short no, you cannot. It is only available for a limited company. A company is a separate legal entity for tax purposes. Quite often businesses trade through limited companies because the corporation tax rate is lower at just 20% than profits taxed on an individual at up to 45%.

A Word of Advice

An MVL is a really effective way of reducing your tax bill on retirement, but we don’t think it will last forever so if you are ready to proceed with an MVL, now is the time to do it before the law changes.
Contact us today for a free consultation and to find out more about the tax benefits of a Members Voluntary Liquidation. We can help.

What are the five key tax hurdles of a Members Voluntary Liquidation?

A Members Voluntary Liquidation is used to save tax and make a distribution out of a company as capital (10% tax) rather than income (up to 45% tax).

There are a few important tests to make sure the shareholders qualify for Entrepreneurs Relief so that they qualify for the 10% capital gains tax. These are:

  1. They own at least 5% of the ordinary voting shares.
  2. They are a director.
  3. They have owned the shares for 12 months.
  4. The company actually carried out a trade.
  5. Finally the company must be wound up within 36 months of the date trading ended.

Once the shareholders are at that stage they should find an experienced and qualified Licensed Insolvency Practitioner and obtain a fixed fee quote to wind up the business as a Members Voluntary Liquidation.

From the date of the first enquiry usually it takes about 7 days to place the company into liquidation (if the shareholders are ready to proceed) and then another 7 days to pay out the majority of the funds. There is then a period of usually 3 to 6 months before the company can be finally dissolved.

If you would like to find out more about MVL’s or ask for a fee quote please contact me.

Voluntary Arrangements

What is an Individual Voluntary Arrangement?

An Individual Voluntary Arrangement is a legally binding restructuring of your debts into a manageable amount. Quite often it involves you paying back part of what you owe over a period of five years. It only applies to unsecured debt, which means it does not include mortgages on property.

In more detail

Individual Voluntary Arrangements (IVAs) have been around for nearly 20 years now. They can be used by people in business or private individuals to freeze their liabilities or debts. There are about 50,000 IVAs registered each year.
IVAs are typically used by someone who has built up unsecured debt that they cannot pay. A typical example of someone using an IVA in business is where the business has traded at a loss, but is now profitable or needs protection whilst it is sold so at least something can be paid back. Often the total liabilities exceed £20,000 and are on average £100,000, although there is no limit. We have carried out an IVA for £35 million.

The IVA is a document called an IVA proposal. It contains:

  • A brief history of why the finances have gone wrong
  • A projection for the future
  • A snapshot of all the assets and liabilities today (and)
  • A proposal to creditors to pay them back something

Often the return to creditors is less than 100p in the £ so that creditors have to wait, freeze interest and don’t get all their money back. The alternative, however is bankruptcy, so it is usually accepted by creditors.

A licensed insolvency practitioner is needed for an Individual Voluntary Arrangement and will help pull the proposal together and make a report to the Court that the IVA is a good idea. They will also help call the meeting of creditors.
75% of creditors by value must approve the IVA. Only those that vote count towards that 75%.
Sometimes creditors propose modifications or changes to the proposal. If they do, the debtor (person making the IVA proposal) must approve those modifications.

Company Voluntary Arrangement

We can assist Directors anywhere in the South West with a Company Voluntary Arrangement .

Broadly speaking a Company Voluntary Arrangement (“CVA”) is a legally binding contract between the company and its creditors where the owners want to save the business but cannot afford to pay all of the debts due now.

It usually involves a freezing of interest and partially writing off debts with an agreed payment plan over one to five years, whilst continuing to trade.

If suitable, a CVA can mean a fresh start for the company. This insolvency procedure tends to be proposed as an alternative to Liquidation when the Directors wish to continue to trade the company. This can mean that a business can be saved and employees may be able to keep their jobs.

This also means that the Directors are able to retain control over the company, albeit under the Supervision of Neville & Co, who ensure that the company adheres to the terms of the CVA.

Successful CVAs usually have a better outcome for the company and the creditors than liquidation because the company continues to trade and creditors usually get a higher dividend. In addition the costs of Liquidation are usually higher than those of a CVA.

At our initial free meeting we can provide you with advice as to whether a CVA is the best option for your company in the circumstances or whether an alternative should be considered. We can explain the pros and cons of all of your options available to help you make the right decision.

Wrongful or Fraudulent Trading

Insolvent Trading – What can happen to my Business

If you are trading whilst insolvent, you may be committing various offences including wrongful or fraudulent trading. When you are insolvent you are using up other people’s money, not your own, so the law will take a much closer look at what you are doing.
Insolvent trading
If you trade as a limited company, any creditor owed more than £750 can petition for the winding up of your business. This means you would go into compulsory liquidation and will have to deal with the Insolvency Service – a Government Agency. It will also mean you stop trading and the company’s bank account will be frozen. During this time, assets may not be removed or sold.
The purpose of liquidation is to sell your business and assets to pay pack all or part of your creditors. This process can take up to a year or potentially longer as during this time you will also be investigated.
The investigation process may lead to you being struck off or banned as a director. If you are found to have been wrongfully or fraudulently trading, you may also have to personally contribute to the losses to help pay back creditors. In these later situations you should take good legal advice as you may have a valid defence.

If you trade as a partnership or sole trader, you will be liable for all the debts, so wrongful or fraudulent trading does not make a difference. You can however be given a bankruptcy restriction order (“BRO”) lasting up to 15 years. This means your bankruptcy is not annulled after 12 months and you will stay bankrupt, meaning your assets will be sold in order to pay your creditors, and you may have to make an Income Payments Agreement if you have surplus income.

A word of advice

The worst cases I see of wrongful trading, directors being banned or bankruptcy restriction orders apply where the business owner just has no regard for anyone else and continue to run up liabilities with no real chance of paying them back.

Directors – How to Avoid Disqualification

As a director, if you know the situation is getting worse it is your responsibility to do something about it and takes steps to stop it getting out of control. Help is out there in the form of licensed insolvency practitioners. The longer it goes on the more chance you have of being disqualified as a director. Disqualification only applies if you were a director or shadow director.

Avoiding disqualification

When a company goes into liquidation or administration, the insolvency practitioner is under a duty to investigate what happened. A report has to be filed with the Insolvency Service in every case. This must cover every director or shadow director and their conduct.
If the Insolvency Service deems the director’s conduct was unfit, they will apply for a disqualification order (directors ban) that can last up to 15 years. If you carry on being a director during the period you are banned you may go to prison.
If the Insolvency Service decides to carefully review a company’s insolvency, they will usually visit the liquidator or administrator and review the records. They may also write to third parties to gather more information for a prosecution and disqualification proceedings.

The evidence they are looking for will include:

  • Allowing a company to continue trading when it can’t pay its debts
  • Not keeping proper company accounting records
  • Not sending accounts and returns to Companies House
  • Not paying tax owed by the company including VAT, PAYE and Corporation Tax
  • Using company money or assets for personal benefit
  • Directors need to keep on top of the finances of their business and make sure it is profitable. This is particularly important if shareholder/directors take dividends instead of salary to save tax.
It is very important as well to keep accurate records and minutes of meetings especially if those meetings discuss whether to carry on trading or not. You will be asked to justify why you carried on trading if losses continued and the creditors position got worse.
It is always sensible to take professional advice early on as a protective measure.

A word of advice

If your company enters a Company Voluntary Arrangement rather than liquidation or administration you cannot be struck off. There is no investigation and no report to the Insolvency Service on your conduct.

The Twilight Zone - Should I be worried about wrongful or fraudulent trading?

One of the first questions that directors normally ask me is “Should we be worried about wrongful or fraudulent trading?”

Well the answer is: Yes, but actually cases of this are rare. There is a far bigger risk to them which occurs when they know they are insolvent and before they decide to close. Known as the ‘twilight zone’, it is during this time they can commit various other offences. Directors who continue trading have a duty to make sure:
  • All creditors are treated and paid equally so one is not favoured above another.
  • No assets are given away or undersold.
  • They don’t put themselves in a better position by continuing to trade – a common example of this is paying down an overdraft that was guaranteed.
  • They avoid using a new supplier and not paying them which can leave the directors personally liable if the supplier can prove the directors knew they could never pay for the orders.

It is often in this ‘twilight zone’ that directors run into most problems. They think they can make the finances better for creditors, for example by running stock down or finishing work-in-progress, but the daily battle they have is who to pay or not and who can be told or not.

It is not uncommon for directors to meet us, go away thinking they will carry on for a month or two, but then almost immediately come back asking us to help close the business.

If you have clients who need impartial and common sense advice please ask them to call us? We can help with;

When to consult us

The sooner we are consulted the sooner we can assist you in finding a way through the business difficulties you are facing. The later it is left, the fewer the options will be. The best time to consult is as soon as you become a distressed company and any financial difficulties become apparent. You don't want to be building up company debt, unpaid invoices and outstanding creditors through wrongful trading and end up an insolvent company in a difficult financial position facing legal action.

If you are a struggling company or have been affected by Covid 19, contact us now for confidential advice. We are a local business supporting local businesses covering all of Devon, Cornwall and Somerset.

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