What is the declaration of solvency?
This is a statement by the directors that says there are sufficient assets (that can be realised) of the company to pay all of the liabilities, costs of the process and statutory interest on all creditor balances.
What are the consequences of getting the declaration of solvency wrong?
This is a sworn statement and you must be sure that the statement is correct. In practice, we are most likely to prepare the Statement of Affairs and we will carefully discuss all of the figures with you. If the figures were such that there was not sufficient margin of assets to swear the declaration with sufficient confidence our advice would be that this option should not be pursued and another procedure be used – probably a Creditors' Voluntary Liquidation.
So long as you have acted reasonably on professional advice it is very unlikely that you could be criticised for swearing a declaration of solvency that was subsequently found to be wrong.
I thought there was an Inland Revenue concession that allowed the company to be struck off rather than a formal liquidation process?
This concession allowed the striking off procedure to be used and distributions to shareholders is treated as a capital distribution. This is usually something your accountant would be involved with and may have tax advantages. HMR&C with effect from 1st March 2012 have withdrawn this concession where assets of a company exceed £25,000. A Members’ Voluntary Liquidationprocess where the net distributable assets exceed £25,000 would have the effect of making any distributions to shareholders capital rather than income.
How do your fees work?
How long does the process last for?
An MVL should normally last for no longer than one year.
What happens if the assets do not realise as much as we originally thought and the creditors' cannot be fully paid?
This may happen, for example, if a major debtor went bust which could have a significant bearing on the solvency of the company. As soon as the Liquidator believes that the creditors' are unlikely to be paid in full a meeting of creditors' should be called and the process effectively converted to a Creditors' Voluntary Liquidator.
It would also be necessary for the creditors' to appoint another Insolvency Practitioner as Liquidator as ethical rules prohibit the same Liquidator to remain in office for the CVL.
Why does the company need to be formally liquidated if it is solvent?
There may be very good reasons why the business has ceased. These could be;
- Retirement of the directors/shareholders
- Dispute between directors/shareholders
- The trade is no longer profitable.
A formal liquidation may be the best way of bringing all matters to closure. This would also allow time to sell the assets of the company (debtors, property and plant) which could take many months. During this time, without a formal Liquidation your creditors' are likely to take action against the company.
To appoint us to deal with such matters ensures that you are discharging your responsibilities as directors properly. We would ultimately obtain all the necessary clearances are received from the various authorities and the company would be struck off.
What about the employees?
Once a Liquidator has been appointed all employee claims (any unpaid wages, redundancy, payment in lieu of notice and unpaid holiday pay) can be processed. This would mean that the employees' statutory entitlements would be paid within approximately 6 weeks. The Redundancy Payment Office would rank as a creditor of the company and would be refunded when distributions were made to creditors'.
All contractual entitlements due to employees should be paid at the time when a distribution is made to creditors'.