The Advantages of Creditors' Voluntary Liquidation
Its not easy to find the advantages of going out of business in any fashion, especially when your company is in debt and you're not sure whether to let creditors bring you to Court or go ahead and initiate the process voluntarily. If there are any advantages to a creditors' voluntary liquidation they would have to be only relative in comparison to other less pleasant forms of winding up like compulsory liquidation.
Here are some reasons why you should consider opting for a CVL instead of waiting on compulsory liquidation:
- Preparation - Given that you'll be initiating a CVL you'll be better prepared for it and will have more time to plan in order to minimise losses and streamline the process winding up a company. Adversely, a compulsory liquidation can be forced upon your company within a matter of weeks leaving you vulnerable to unnecessary losses and potential accusations of misconduct.
- Control - In a CVL the directors of your company usually get to choose the insolvency practitioner that they'd like to appoint as liquidator, whereas in a compulsory liquidation an Official Receiver is appointed by the creditors or the Court.
- Safety - After the liquidation the liquidator is required to conduct a thorough investigation in order to ascertain whether any of the directors of the insolvent company were guilty of misconduct such as wrongful or fraudulent trading. If you take the initiative to enter into a CVL you'll be given guidance by a licensed insolvency practitioner so you'll be better prepared for such allegations.
- Satisfying Creditors - In a CVL directors have the opportunity to present a statement of the company's affairs to creditors during the creditors' meeting. This may satisfy and reassure creditors thereby preventing them from wanting to make any type of accusations against directors. On the other hand, in a compulsory liquidation the creditors have to initiate the process and pay expensive fees to bring you to Court, so they're more likely to want to accuse you of wrongful or fraudulent activity after having to spend their time and money to wind up your company.
- Official Receiver Investigation - Directors will in a compulsory liquidation will at the very least face questioning and a lengthy interview with the Official Receiver during a compulsory liquidation.
- Opportunity to Purchase Assets – during your initial consultation with the insolvency practitioner you'll have the opportunity to discuss a number of options perhaps even having ones or more of the directors of your company purchase some of the assets in what is called a “prepackaged” sale of assets. These assets could then be used by a newly formed company to simplify the challenge of starting again with a new company. Although a pre-pack sale may still be possible in a compulsory liquidation it is more difficult to arrange and the process would be significantly delayed.
- Timing and Cost – While a CVL only takes about 2-3 weeks to facilitate the meeting of creditors, a compulsory liquidation can take several months, during which time you'd still have to face aggressive communication from creditors and bailiffs. Furthermore, in a compulsory proceeding fees have to be paid to Secretary of State so the overall cost is higher and the amount of returns creditors will receive will be lower.
There are also disadvantages of a CVL to be considered and if you have any curiosities about creditors' voluntary liquidation feel free to send us your questions online or call us on 0800 644 6080 for a free phone consultation. Our extensive office network comprises 78 offices across the UK with a partner-led service offering immediate director advice and support.