To liquidate a company is to formally wind up its affairs – trade ceases, assets are realised and the liabilities quantified. If the debts exceed the value of the assets the company is insolvent. In the situation it is the creditors that control the liquidation process.
There are two types of formal process to deal with an insolvent Liquidation;
• Creditors Voluntary Liquidation (CVL)
• Compulsory Liquidation (CL)
The key difference between a CL and a CVL is that a CL is driven by a creditor or creditors through the courts. A CVL is driven by the directors.
A Pre-Pack Administration or ‘Pre-pack’ is a procedure to deal with the closure of your company if the company is insolvent – or in other words the value of the assets of the company are not enough to be able to clear all of the debts.
A Pre-pack Administration is really exactly the same procedure as for an Administration. The only difference is that there is a purchaser for the company and all the terms of the sale have been agreed so that the sale can be completed as soon as the Administrator has been appointed.
This procedure is to be used (rather than a Creditors Voluntary Liquidation or Company Voluntary Arrangement) if there is part or all of the business that can be sold or is worth trying to salvage. Of course, this is something that we will carefully review with you to make sure the right process is chosen to deal with your company.
Company Voluntary Arrangements
A Company Voluntary Arrangement (CVA) is a procedure whereby a company can continue to trade even though it is insolvent – in other words, the company cannot meet its on-going liabilities from the cash flow that is being generated from the company.
A CVA is to be used (rather than a Creditors Voluntary Liquidation) if the company has already or is likely to return to profitability in the near future and the debts can be paid off over an extended period of time. The CVA is a tailored plan to repay to creditors, usually over a 3 year period, what the company can afford to pay – typically, this is between 25 to 60% of the total debt.
An Administration is a procedure to deal with the closure of your company if the company is insolvent – in other words, there are not enough company assets which can be sold or realised, to pay off all the debts of the company.
An Administration procedure is to be used (rather than a CVL or a CVA or a Pre-pack Administration) if there is part or all of the business that can be sold or is worth trying to salvage. Usually, a Pre-Pack Administration is chosen for a smaller company. Of course, this is something that we will carefully review with you to make sure the right process is chosen to deal with your company.
As part of our work we will speak to your bankers, HMR&C and any major supplier to explain the plan in more detail and get their support. These are delicate negotiations and not all Insolvency Practitioners have the experience or expertise to do this.
On appointment as Administrator we will effectively take charge of the running of the business.
The major difference between a Pre-pack Administration and an Administration is that there is not a purchaser who can immediately complete or that a longer marketing period for the business is likely to produce a much better sales price for the creditors.
Members Voluntary Liquidation
A Members Voluntary Liquidation (or MVL) is the procedure to close your company if the company is solvent – in other words, there are sufficient company assets which can be sold or realised, to pay off all the debts of the company.
This can sometimes be a very fine decision because the costs of the process and interest on creditor balances need to be taken into account in the calculation.
We would prepare this financial information (called a statement of affairs) from the records of the company and carefully discuss it with the directors before a final decision could be made.
Based on this information and our advice, you as a director, need to be reasonably satisfied that the company will be able to pay its debts within one year.