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COVID-19 has made my company insolvent and it needs to go into liquidation

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Liquidating your company due to Covid-19

A CVL is a director-initiated formal company liquidation procedure for businesses with no prospect of recovery. If your business is out of cash due to Covid-19, company liquidation by means of a Creditors’ Voluntary Liquidation (CVL) may be inevitable to act in the best interests of creditors and bring the business to a close.

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COVID-19, insolvency, and liquidation: Advice for directors

The coronavirus pandemic is causing serious financial distress for businesses around the world, and many companies are simply unable to continue due to the effects on trade of lockdown and other measures put in place to protect our health.

A shortage of cash is always a huge issue for businesses, even under normal trading conditions, and can quickly cause cash insolvency as it becomes impossible to pay bills when they fall due.

Balance sheet insolvency may also be an issue if your liabilities exceed the value of your business assets, so if your company is insolvent and you believe it needs to go into liquidation what should you consider?

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Seek professional assistance to check for alternatives

A licensed insolvency practitioner (IP) will carefully assess your company’s financial situation and might be able to offer alternatives to liquidation. Depending on your circumstances, here are a few options that could be open to you:

  • Company Voluntary Arrangement (CVA) whereby your debts are formally renegotiated within a legally binding agreement
  • Company administration – a process that offers protection from creditors and more time to plan
  • Emergency funding – whether that’s via alternative lenders or one of the government backed loan schemes
  • HMRC Time to Pay arrangement (TTP) if one of your creditors is HMRC

If there are no other options left, however, and regrettably you do need to liquidate, you should choose voluntary insolvent liquidation rather than enforced liquidation by one of your creditors.

Creditors’ Voluntary Liquidation (CVL) vs compulsory liquidation

If liquidation is the only remaining option, it’s preferable for your company to enter Creditors’ Voluntary Liquidation rather than waiting for a creditor to force you into compulsory liquidation.

By entering liquidation voluntarily you’re placing creditor interests first, and although the procedure attracts professional fees you may be eligible to claim redundancy pay and other entitlements as a director, which could help to pay them.

Both forms of insolvent liquidation involve investigation into director conduct, but these investigations are more stringent where compulsory liquidation is concerned. A further benefit of CVL is that you have more control, and can choose your own insolvency practitioner to oversee the process.

Initially, however, a special resolution is passed by the company’s members to place the company into voluntary liquidation and appoint a liquidator.

Appointing a licensed insolvency practitioner during COVID-19

Liquidation must be administered by a licensed insolvency practitioner, so you’ll need to obtain professional insolvency assistance if you haven’t already done so. The liquidator confirms the company’s financial position and informs all creditors of the situation.

All business assets are then professionally valued and sold for the benefit of creditors, and the funds distributed according to the statutory hierarchy. Sadly, all jobs are lost and at the end of the procedure the company is removed from the register at Companies House and ceases to exist.

Can you claim director redundancy?

If you’re employed by your company as well as being a director, you may be able to claim redundancy pay and other entitlements. The appointed liquidator will advise on your eligibility - the criteria for claiming director redundancy include:

  • Working under a contract of employment, whether that is written, oral, or implied
  • Being employed by your company for a continuous period of two years
  • Working a minimum of 16 hours per week in a role that’s more than advisory
  • Receiving a salary under the PAYE scheme

Need to speak to someone?

If your company is struggling with unmanageable debts, squeezed cash flow, or an uncertain future, you are far from alone. We speak to company directors just like you every single day, and we are here to give you the help and advice you need.
Call our team today on 0800 644 6080

The average payout for director redundancy currently stands at £9,000 so it’s worthwhile considering making a claim if your company enters voluntary insolvent liquidation. As mentioned earlier it could help to pay for the process, or provide vital funds that help you manage financially through the coronavirus crisis on a personal basis.

If you would like more information on company insolvency and entering liquidation during COVID-19, our expert team at Real Business Rescue can help. We’re insolvency specialists and can advise on the best way forward. Please contact one of our partner-led team to arrange a free same-day consultation.

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