My company is Insolvent but cannot afford liquidation. What are my options?
If your company is insolvent and you want to close it, the most common formal procedure is a Creditors Voluntary Liquidation (CVL).
The company usually funds a CVL itself, and although the costs may seem prohibitive, they can vary depending on many factors, including the number and type of creditors. If, after outlining the costs and funding options, your company still can’t afford a CVL, alternative solutions may be viable, though each has its own advantages and considerations.
Seeking professional advice as early as possible is key to safeguarding your duty as director and identifying the best path forward.
How is a Creditors Voluntary Liquidation paid for?
The responsibility for paying the costs of a CVL typically falls on the company itself, as it is a separate legal entity from you as its director. However, when the company cannot cover the costs, the responsibility can shift to the directors or shareholders to ensure the process can proceed.
As director, you can, but are not limited to using one or more of the below options to fund a CVL:
- Using company funds
If your company has sufficient funds in its bank account, you can use these to cover the cost of the liquidation. - The sale of company assets
When we are appointed as liquidator one of our roles is to help sell company assets, the company’s business, and any works in progress, as a means of raising funds to cover the liquidation cost. - Overdrawn directors loan account
If you have an overdrawn directors loan account and owe the company money, once this has been repaid to the company, the monies can be used for the company to fund a liquidation. - Personally raising the funds
It is not uncommon for directors to attempt to raise the funds for a CVL through selling their personal assets, through savings, raising finances, lifestyle changes, and borrowing money from friends or family.
Talking to our licensed and regulated insolvency practitioners (IP) can help clarify whether a formal liquidation is feasible for your company, clear up any confusion about our costs, and clarify your options to pay.
How much does a Creditors Voluntary Liquidation cost?
A CVL’s costs can vary depending on the nature and complexity of the company and its circumstances. Factors affecting the potential cost of a liquidation can include whether the company has any assets and the number of shareholders.
The liquidation’s cost can vary depending on the company’s circumstances, including:
- The level of debt
- The number of shareholders
- The quantity and value of its assets
Our initial advisers can assess your company’s circumstances and provide free, impartial, confidential advice with no obligation. If a CVL would be the best way forward, we can arrange an appointment with a consultant who can factor these circumstances into a bespoke quote for your company.
More on how much a CVL costsAdvantages of a CVL
Closing a company through a CVL has many advantages, including but not limited to:
- Close the company and walk away
Directors can propose the voluntary liquidation of an insolvent company and with 75% of the shareholders agreement, the company can enter into a CVL. The process will see the company formally wound up and the directors can walk away from the limited company.
- Continue to trade through a different company and purchase assets back
It is possible to liquidate a company and continue to trade the business through a newly registered or existing company. This is commonly known as a pre-pack liquidation.
These are some of the key differences when referring to a pre-pack liquidation which are agreed with the liquidator prior to a company entering CVL:
- Some or all of the insolvent company’s assets can be purchased and transferred.
- The business can continue uninterrupted.
- Employees have the possibility of being TUPE’d
Directors can purchase assets from the insolvent company through a CVL, whether for personal or company use. - Unsecured debts are written off
All unsecured debt is written off with the formal liquidation of the company. Allowing directors to move on without the burden of this debt.
- Hold position of director at other limited companies
A director can continue to, or become the director of other companies, after a company they have been director of has gone into liquidation.
- Legal action stops
Any current or future legal action taken against the company, such as County Court Judgements or Winding Up-Petitions, are stopped once the company enters CVL.
- Liquidators deal with creditors
Director responsibilities will cease and the insolvency practitioner will handle all communication with creditors, such as phone calls, letters and bailiffs. Removing the burden of any action taken against the company.
- Take control, avoid court processes and compulsory liquidation
Directors who choose to enter a CVL will have more control over the process and be able to appoint their own liquidator. By entering into a voluntary liquidation, the company avoids being wound-up by creditors and forcing the company into compulsory liquidation, with the Official Receiver taking control.
- Leases can be cancelled
Terms on leases and hire purchase agreements will be terminated, stopping any further payments. Any arrears owed, will be written off as the company is liquidated.
- Reduce wrongful trading accusations
Directors who decide to cease trading and enter into a CVL, are prioritising their creditors interest and will limit the risk of accusations of wrongful trading, when the liquidator investigates the company’s insolvency.
- Employee, director entitlements and redundancy pay
If eligible, employees and directors can apply for statutory entitlements, such as:
- Redundancy pay
- Holiday pay
- Outstanding payments such as:
- Unpaid wages
- Overtime and bonus/commission
- Statutory notice pay
- Directors fulfil legal obligations
Directors have a legal obligation to be aware of their company’s financial position at all times and to hold no creditor preferences. By entering into a CVL, this shows directors are prioritising creditors.
- Take control of the liquidation and choose a liquidator
A Creditors Voluntary Liquidation is an irreversible process, which cannot be undone or objected to by creditors. By choosing to voluntarily liquidate it enables directors to take more control and choose their own liquidator.
How we can help you liquidate your insolvent company
As licensed insolvency practitioners, we can offer free, confidential advice and can carry out the below formal insolvency procedures to help you close and liquidate your insolvent company.
- Close your company down via a Creditors Voluntary Liquidation (CVL)
A CVL is a liquidation procedure for companies that are insolvent. The process will formally close and liquidate your company, ceasing its trading operations, realising any assets and removing the threat of creditor legal action. If your company has employees, they can claim for redundancy and other statutory entitlements through the government’s Redundancy Payment Service (RPS). The process is final and irreversible. Once completed your company’s unsecured debt will be written off and the company is dissolved, allowing you, the director to move on.
More on CVLs - Close your company down and start again via a pre-pack liquidation
A Pre-Pack liquidation is a type of CVL where the sale of your company’s assets is arranged before liquidation, allowing business operations to continue seamlessly under the purchasing company. The company name may be reused, and employees can transfer under TUPE. Contracts and essential agreements can also be included as part of a sale, ensuring minimal disruption to your business operations. This process eliminates the unsecured debts of your previous company, providing a fresh start free from previous unsecured liabilities.
More on pre-pack liquidation
Can I claim redundancy as a director if I liquidate my company
A director is entitled to claim for redundancy, as well as other statutory entitlements, including notice pay, holiday pay, and unpaid wages. These can effectively help you recoup any personal cost of a liquidation. However, since our costs are upfront, we can’t complete a liquidation and then use redundancy claims as payment.
There are certain criteria to fulfil to claim director redundancy, including:
- You must be working a minimum of 16 hours a week
- You must be working as an employee for at least 2 years
- You must be owed money from the company
- You must be a director and employee of the limited company, work there and receive a monthly wage (above minimum wage) for all work and hours completed
- You should have a valid contract of employment
You can claim for redundancy by requesting a form from us or by going online to request one from the Insolvency Service.
More on director redundanciesAlternative options if your company can’t afford a CVL
If you or your company cannot cover the cost of an insolvency practitioner, you may have the option of waiting for one of your creditors to force your company into compulsory liquidation. This process removes any control you have over the liquidation of your company and stops you from being able to choose your own liquidator.
- Compulsory liquidation
Compulsory liquidation is a formal insolvency procedure which is initiated when a creditor is owed more than £750 and apply for a winding-up petition on your company. After the petition is submitted a court hearing will be scheduled and decide if a winding-up order is to be issued, which will place your company into compulsory liquidation. The courts will then appoint an official receiver to act as the liquidator for your company.
More on compulsory liquidation
More on what can happen if you try to dissolve a company with debts
How to get in touch with us: The next steps for engagement
- Speak with our initial advisers
Make contact with our team, via phone, filling in a form or online chat. If suitable, we will arrange a free consultation with one of our consultants to discuss your situation in depth. - Initial assessment
During the consultation, we will assess whether the liquidation of your company is the most appropriate route forward, or whether alternative solutions, such as a CVA or administration, would better suit your company’s problems. - Formally engage with Wilson Field
We will confirm the necessary steps to place your company into liquidation, or an alternative insolvency solution and will issue you with the relevant documentation for you to formally engage is.
In summary
If your company is insolvent and you want to formally close it, a CVL is the most appropriate solution available. The processes costs can vary depending on the company’s circumstances, and can be covered through company funds, asset sales or personal contributions. If the process is still unaffordable after these considerations are factored in, an alternative solution could still be viable. We can help you understand the specific costs and talk you through how the process can be funded, as well as exploring alternative solutions to your situation.
Case Studies
M J Squire Limited
Kelly Burton • Construction & Engineering • Creditors Voluntary Liquidation (CVL)
A bespoke joiners and shop fitters in Sheffield, M J Squire Limited, had been in its trade for more than 30 years.
However, recently it has been forced to close due to the downturn in the construction and retail industry.
The company was located at Orgeave Close in Sheffield, after working for many household names over the years including House of Fraser, Levi’s, Austin Reed and Tommy Hilfiger.
Until 2014, it had been a profitable company but over the past couple of years, it had been unable to secure profitable contracts.
February 10th, 2016 saw the appointment of Wilson Field’s Andy Wood and Robert Dymond as liquidators. This development for the company came as a result of suffering cash flow problems.
Operations at M J Squire Limited have now ceased and regrettably, all nine roles within the company were made redundant.
Andy Wood, insolvency practitioner from Wilson Field, spoke about his work on this case.
“Declining sales at M J Squires significantly impacted cash flow and the business’ ability to meet its liabilities. In the face of tough market conditions, the director has taken the difficult decision not to continue trading. The business has closed and the assets are being sold.”
“It is very sad to see this well-known local business cease to trade after over 30 years. The downturn in the retail sector has hit this business hard.”
Derwent Castings Limited
Kelly Burton • Metals • Creditors Voluntary Liquidation (CVL)
Unsecured creditors owed money by a Derbyshire manufacturing company which went into liquidation are to receive a higher than the expected dividend of 60p in the pound.
A total in excess of £128,000 is due to be distributed to unsecured creditors of Whatstandwell-based Derwent Castings Limited, whose claims totalled over £192,000.
The company, whose roots date back to the 1940s, had traded profitably for a number of years but in late 2013 / early 2014 saw the cancellation of its largest sales contract which represented 70 per cent of its turnover.
Bosses at the company, which employed 16 staff including three directors, struggled to attract replacement business and had to drop prices. Further business was lost as a result of foreign competition.
Sheffield’s insolvency specialist Wilson Field was called in as liquidator and worked with the creditors’ committee of Derwent Castings Limited to secure the positive dividend.
Andy Wood, associate director and insolvency practitioner at Wilson Field said:
“Dividends for insolvent companies are generally low, or nothing, for a variety of reasons – cost of staff redundancies, difficulty collecting outstanding invoices, selling assets in a forced sale situation, selling specialist assets which have limited appeal to purchasers, deteriorating or perishable assets, as well as other costs involved.
“However, thanks to a very positive relationship with the creditors committee, I am delighted to return a healthy dividend to the unsecured creditors in the region of 60p in the pound.
“The supply chain is often greatly affected by a liquidation and in this case we have been able to help creditors.”
Derwent Castings Limited was incorporated in August 2002 and specialised in iron casting from the five-acre Derwent Foundry site at Whatstandwell near Matlock.
However, the iron founding operation at Derwent Foundry was first introduced back in 1946 by Wragg & Hawksley which produced cast iron pipes for the water industry.
In 1950 the foundry was acquired by WH Davis & Sons Ltd to supply castings for their railway wagon building business. Following a management buy out in 1984, the company was renamed Derwent Foundry Ltd and following its closure in July 2002, was bought by its present owners and renamed Derwent Castings Ltd.
Amongst jobs carried out on site were moulding using loose pattern and modern air setting (boxless) sand systems; metals work using the latest in electric induction melting producing a wide range of grey, SG and alloy irons; an independent Namas approved test laboratory, finishing, pattern making and machining facilities.
Statestrong Limited
Kelly Burton • Manufacturing • Administration, Creditors Voluntary Liquidation (CVL)
Insolvency experts Wilson Field has helped turnaround the fortunes of a loss-making manufacturing company in Lancashire providing a new future for its 80 employees.
Businessman Russell Blaikie acquired the struggling 40-year-old Statestrong Limited, headquartered in Lytham St Annes, through a pre-pack sale and has been able to help the company immediately utilising his expertise in manufacturing and management.
Arrangements for the purchase of Statestrong’s business and assets were negotiated by Sheffield business specialists Wilson Field who affected the sale shortly after being appointed.
The company, which manufactures and supplies aerosol and liquid products for use in health and beauty, household, automotive and industry globally, posted sales of £12m last financial year, but had suffered pressure from creditors with outstanding arrears.
The total value of the deal is undisclosed but includes the business and the assets of the company based on Boundary Road in Lytham St Annes and Tarporley in Cheshire, which will now trade as Statestrong Products Limited.
Mr Blaikie said:
“Transactions of this nature are sensitive and require careful handling. The team at Wilson Field provided exactly the right professional approach.”
Wilson Field’s insolvency practitioners Kelly Burton and Joanne Wright worked closely with Mr Blaikie along with senior corporate case administrator Gareth Kinneavy.
Kelly Burton, said:
“The company had a wealth of expertise but was straddled with financial liabilities which ultimately made its future questionable. Looking forward, a previously distressed business now has a viable future.”
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