What are the types of liquidation?
There are three types of liquidation.
- Creditors Voluntary Liquidation (CVL) – An insolvent liquidation initiated by the directors
- Members Voluntary Liquidation (MVL) – A solvent liquidation initiated by the directors
- Compulsory Liquidation – An insolvent liquidation involving the Courts
All of the above types of liquidation are formal insolvency procedures and must be carried out by a licensed insolvency practitioner, such as ourselves. Each process will formally close and wind-up your company.
Close your company down via a Creditors Voluntary Liquidation (CVL) – Insolvent liquidation
A CVL is a formal 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.
Closing a company through a CVL has many advantages, including but not limited to:
- Close the company and walk away
You can propose the voluntary liquidation of your insolvent company and with 75% of the shareholders agreement, the company can enter into a CVL. The process will see your company formally wound up, allowing you, the director, to walk away from the company.
- Continue to trade through a different company and purchase assets back
It is possible to liquidate your 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 us, as the liquidator, prior to your company entering a CVL:
- Some or all of your insolvent company’s assets can be purchased and transferred.
- The business can continue uninterrupted.
- Employees have the possibility of being TUPE’d
You can purchase assets from your 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 your company. Allowing you, as director to move on without the burden of this debt.
- Hold position of director at other limited companies
As director, you can continue to, or become the director of other companies, after a company you have been director of has gone into liquidation.
- Legal action stops
Any current or future legal action taken against your company, such as County Court Judgements or Winding Up-Petitions, are stopped once the company enters CVL.
- Liquidators deal with creditors
Your responsibilities as director will cease and as the insolvency practitioner, we will handle all communication with creditors, such as phone calls, letters and bailiffs. Removing the burden of any action taken against your company.
- Take control, avoid court processes and compulsory liquidation
By choosing to enter a CVL, you will have more control over the process and be able to appoint your own liquidator. By entering into a voluntary liquidation, your company will avoid being wound-up by creditors and forced 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 your company is liquidated.
- Reduce wrongful trading accusations
By deciding to cease trading and enter into a CVL, you are prioritising your creditors interest and will limit the risk of accusations of wrongful trading, during the investigation of your company’s insolvency.
- Employee, director entitlements and redundancy pay
If eligible, both you and employees 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
You have a legal obligation to be aware of your company’s financial position at all times and to hold no creditor preferences. By entering into a CVL, this shows that as director you 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 you to take more control and choose their own liquidator.
Find out more about Creditors Voluntary Liquidation
In certain circumstances, it may be possible to preserve the value of a business and continue its operations in a new company, by arranging for its assets to be sold immediately upon entering liquidation.
- 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.
Find out more about Pre-pack Liquidation
Close your solvent company down via a Members Voluntary Liquidation (MVL) – Solvent liquidation
An MVL is the liquidation and closure of a solvent company. A company is solvent when it has sufficient assets to settle all liabilities in full, plus statutory interest within a given period of less than 12 months. The procedure would formally wind up and close your company, while extracting the company’s maximum value through its various tax benefits such as Business Asset Disposal Relief (BADR). The company’s assets, including any premises, are realised, with the remaining funds distributed to shareholders once creditors are satisfied.
The process also includes many benefits to both directors, shareholders, and creditors.
- Tax advantages
An MVL can avoid the imposition of income tax, which would otherwise arise if your company applied for dissolution, where the total assets exceed £25,000.
- Capital gains
The distributions to shareholders from a Members Voluntary Liquidation, enables capital gains tax:- For lower rate taxpayers it is 18%
- For higher rate tax payers it is 24%
- Business Asset Disposal Relief (BADR)
In many cases, shareholders benefiting from distributions out of the MVL process will be able claim a further discounted rate of Capital Gains Tax through BADR.- If all your gains qualify for BADR this rate is 14%
Find out more about Business Asset Disposal Relief BADR
Tax Advice:Wilson Field does not give tax advice. As individuals and companies can have very different tax circumstances, we always recommend that you take advice from your accountant or tax specialist about Business Asset Disposal Relief before making any decisions about closing your company using the MVL process. - Capital gains
- Formal liquidation procedure
An MVL is a formal liquidation which must be carried out by a licensed insolvency practitioner (IP), such as ourselves. We will ensure that all legal procedures are properly followed, ensuring peace of mind for you as the directors and shareholders.
- Company is formally closed and wound-up
You can have peace of mind, knowing that your company has gone through a formal liquidation procedure, with the company wound-up and closed.
- Creditors fully paid out
As your company is solvent, an MVL should ensure that all creditors related to the company are paid out in full.
- Asset distribution
An MVL ensures a structured process for the distribution of assets meaning a smooth transitions of assets to shareholders, which will help avoid disputes and disagreements.
- Quick cash release
Subject to shareholders signing their indemnity, here at Wilson Field, we don’t have to wait for HMRC to grant us clearance to release the funds from the MVL process.
- Fast distribution
We will aim to distribute funds to you within 7 days of receipt of your cash from the company’s bank.
Find out more about Members Voluntary Liquidations
Compulsory liquidation
Compulsory liquidation is formal insolvency procedure initiated when a creditor is owed more than £750 and applies for a winding-up petition against your company. After the petition is submitted, a court hearing will be scheduled to decide if a winding-up order is to be made, which will place your company into compulsory liquidation. The courts will then appoint an official receiver to act as the liquidator for your company.
Directors have little, if any, control over a compulsory liquidation. If you feel your company has no future, a Creditors Voluntary Liquidation (CVL) is generally preferable. A CVL can give you breathing space as a director and allow the company to close in a more orderly manner.
More information about compulsory liquidation
How our services can help you
As licensed insolvency practitioners, we can carry out all the types of voluntary liquidation listed above. If your company is struggling financially, or you are considering closing your company, we can offer free, confidential advice on the insolvency procedures available.
If you want to consider alternatives to liquidation, we can also help advise you on the different insolvency solutions that could be applicable to your company.
- Repay your company debts in a payment plan via a Company Voluntary Arrangement (CVA)
A CVA is a payment plan between a company and its creditors that allows you to restructure your company’s unsecured debts, while continuing to trade, by making affordable monthly payments over a fixed period. We start by assessing your company’s financial position, determining a realistic repayment amount. These terms are then proposed to your creditors and if approved, your company enters the repayment plan. When in place, all interest and charges are dropped and creditors in the arrangement cannot take further legal action. The process lasts for up to 5 years and on successful completion, any remaining unsecured debt in the arrangement is written off.
- Restructure your company through administration
Administration is an insolvency procedure for companies. Entering the procedure, your company will be in a temporary state of protection by a moratorium that halts creditor action, including legal proceedings, giving your company the breathing space to continue trading. We will act as administrator and our primary purpose is to rescue your company as a going concern, attempting to restructure and turn it into a leaner, more profitable organisation. If rescuing the company isn’t a viable option we will also look at the most appropriate exit strategies from administration, whether that be a potential sale of the business, assets, the whole company, or transitioning to an alternative insolvency procedure.
How to get in touch: The next steps
- Speak with our initial advisers
Make contact with our team, via phone, filling in a form, or online chat. We will assess your circumstances and, if suitable, arrange a free consultation with a consultant to discuss your company’s situation. - Initial assessment
During the consultation, we will advise if an insolvency procedure is the most appropriate route forward or whether alternative solutions better suit your company’s problems. - Formally engage with Wilson Field
If there is an appropriate insolvency solution, we will confirm the necessary steps to start the procedure and will issue you with the relevant documentation for you to formally engage us.
In summary
There are three types of formal liquidation, with each process designed to liquidate a company in a different state of solvency. Each will result in the formal closure of a company, and the most appropriate process for your company will depend on its solvent position
We can offer you free, confidential advice on the financial position of your company and help advise you on the most appropriate solutions.
Case Studies
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.”
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.
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