Creditors’ voluntary liquidation
In some instances, it isn’t possible to save or dispose of a business, so liquidation becomes the only available option. There are a number of circumstances where voluntary liquidation is the best course of action; we can carry out an assessment and offer advice on the most prudent course of action for your business.
What are these two types of liquidation?
There are occasions where the directors of an insolvent company want to limit their liability. In these instances, liquidation can be a way forward. It’s a fast way to close a limited company and keep creditors at bay.
A CVL is the most common way for directors and shareholders to deal voluntarily with their company’s insolvency. This is because it is in the interests of the directors to take action at an early stage, in order to minimise the risk of personal liability for wrongful trading.
Here, the directors and shareholders put the company into liquidation and the creditors choose a liquidator to act on their behalf. The assets and liabilities are dealt with by the liquidator who apportions them between each class of creditor.
MVLs differ from CVLs in that they are used in the winding up of a solvent company and as a means of taking capital from the business tax-efficiently. MVLs can often prove an attractive solution due to the different rates applicable to capital gains and earned income, and the application of Entrepreneurs’ Relief.
To put an MVL in motion, there will need to be a resolution passed at a shareholders’ meeting. The liquidator will then deal with the assets and liabilities, with any surplus distributed to shareholders.
This type of liquidation means that directors can comply with their statutory and fiduciary duties. In some instances the disposal of company assets can cover the costs incurred in the process.
When are CVLs and MVLs used?
A CVL is appropriate where a company is insolvent and there is no other option other than the company ceasing to trade and being wound up. If the company is solvent, then a MVL may be applicable.
HW Fisher regularly offers advice to directors wanting unlock capital tied up in the business, or those looking to reduce the financial burden of dormant, non-trading subsidiaries through the application of an MVL.
Am I personally liable if my company is insolvent?
Directors have a responsibility to act prudently, and failing to admit that the company is insolvent can lead to legal action under several acts governing company administration and the payment of taxes.