What are the advantages of liquidating a business?

What are the advantages of liquidating a business?

May 16, 2019 by Sandra

As an accountant for a business owner, you will need to know the options your client has should their business fall into insolvency. Understanding all of the options available will allow you to offer the best advice for your client. In this blog post, we will be revealing the benefits of a creditors’ voluntary liquidation (CVL).

What is a CVL?

A creditors’ voluntary liquidation is a quick yet powerful way to close a business while ensuring that everything is dealt with legally and properly. It allows business directors to start up a new business having debts dealt with and leases cancelled, and is a good option for business owners if their company has no viable future. A CVL is a straightforward process once it has begun, so could make a good option for your client.

If carried out correctly, many directors do not have to pay to liquidate a limited company. The earlier you spot the warning signs, the better. It is a common misconception that a company director will have to pay for liquidation out of their own pocket. However, if caught at an early stage, insolvency can often be paid for through company assets.

During the liquidation process, a liquidator is appointed to liquidate a company’s assets in order to raise funds to pay creditors. The business will be removed from the registrar, meaning that it will be unable to trade and will, therefore, close for good. Wrongful trading can take place when a director does not follow their director’s duties under the Insolvency Act 1986. In most cases, a CVL is a better option for businesses than letting a creditor wind up your company voluntarily. This is because it is less likely to result in charges of wrongful trading as the director takes control of the situation.

Before starting the CVL process

It is vitally important to contact an Insolvency Practitioner to learn more about the options your clients have before reverting to a CVL. There are other options to deal with insolvency and you need to ensure that your clients only proceed with the one that is right for them. The interest of the creditors should always be prioritised and so all options must be considered first.

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The advantages of creditors’ voluntary liquidation

Entering into voluntary liquidation is seen as a positive for creditors as it shows them that the business is putting their interests first. Creditors may also favour this option because they will receive at least some of the loan repayment through the sale of business assets. As this process results in the closure of the business, it can reduce stress and frustration for company directors. Business owners have more control with a CVL because they appoint the liquidator, rather than their creditors or the court as they would in compulsory liquidation. A CVL also involves less urgency, meaning that directors are able to carry out their duties properly and carefully in line with the Insolvency Act 1986. Less urgency also means that business owners will be better prepared for the liquidation, minimising potentially unnecessary losses.

The process of a creditors’ voluntary liquidation is much faster than a compulsory liquidation. A CVL only takes around 2-3 weeks to facilitate the initial meeting of creditors, while compulsory liquidation can take several months.

When to act

As soon as you spot the early warning signs of insolvency within your client’s business, it is vital that you start to make preparations. Referring your client to an Insolvency Practitioner is highly recommended to make sure that the best outcome is delivered. The sooner a CVL can happen, the better it will be for your client and their business. All insolvencies are impacted by when a director acts, so moving quickly will give your clients the best outcome.

At McAlister & Co., we understand that each situation is different, but we will always be able to give your clients a fixed quote over the phone or, due to our national offices, hold an informal meeting at their convenience. Our professional and impartial advice will always aim to show directors the cheapest way to liquidate a limited company. Our staff are experts in corporate insolvency and with their combined knowledge of over 100 years, you can trust us to advise on the best solution.

Your clients will be in safe hands with McAlister & Co. Get in touch with us today to discuss your options further.

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