businessshutdownimage

Business Shutdown

What is an insolvent Liquidation?

“I want a way to shut down the business, but I know I can’t pay everyone back”

Creditors Voluntary Liquidation, CVL or insolvent Liquidation is a means to shut down and handover the business to a Liquidator. Acting as Liquidator, we would then sell or realise the assets and distribute what money becomes available to your creditors. Liquidation occurs when the business is no longer able to trade profitably or its liabilities outweigh its assets

Once you instruct us to place your company into liquidation, we work with you to ensure the best possible strategy for you is put in place before starting the liquidation process.

If you want to buy the assets back, we will instruct an agent and agree a fair price for them with you. Potentially, you can pay for the assets over an agreed period of time. If you don’t wish to purchase the asset, they are likely to be sold on the open market or at auction.

Once appointed, the liquidator will deal with the company’s creditors, agreeing their claims, and where money becomes available, distributing money to them.

Unless you intend on transferring the staff to a new business, they will be made redundant. They can make a claim for parts of their outstanding wages, holiday pay, notice period, and redundancy from the Redundancy Payments Office (a government bureau), something which we are happy to guide former employees through.

In basic terms, a CVL can be implemented in 5 steps.

Step 1 Your company instructs Robson Scott to assist in placing the company into liquidation, who carry out a review of the company’s financial affairs.

Step 2 Third party agents are instructed to value the company’s assets and goodwill, which is then marketed for sale.

Step 3 A report is prepared on the company’s financial situation and reasons for its failure.

Step 4 A creditors meeting is held placing the company into liquidation. The above report is made available to creditors at this meeting.

Step 5 The liquidator sells or realises all assets and makes a distribution to creditors.

From Step 1 to Step 4, the process takes between 18 days and 6 weeks.

Some of the benefits of a Creditors Voluntary Liquidation are:

  • The process is driven by its directors
  • Legal action against the company dies with the liquidation
  • Historic debt is written off, with the exception of personal guarantees
  • Finance agreements, lease agreements, and employee claims are terminated
  • Tax pressure is removed
  • You can purchase the assets
  • It is a relatively quick process as compared to a 5 year CVA
  • Employees are likely to be paid from the Redundancy Payments Office

Negative aspects of a CVL are:

  • Reputational
  • The Liquidator is required to prepare a report on the conduct of the former directors and officers of the company
  • Creditors receive a much lower return

If this sounds of interest, please email ewall@robsonscott.co.uk or freephone 0191 303 7170

What is solvent liquidation?

“I know I can pay everyone off in full, but I want to find a tax efficient way of shutting down my business that allows a period of time to realise my assets”

If you want to stop trading, and your business has material debts and assets remaining, but you are confident that it could reasonably pay off its debts within a 12 month period (normally by selling its assets), and still have surplus cash or assets, then a solvent liquidation, also referred to as Members’ Voluntary Liquidation (“MVL”) would suit.

One of the main benefits of closing down via a MVL rather than Dissolution is that any distribution of assets or cash back to members should be taxed at 10% (Entrepreneurs’ Relief), as opposed to your usual tax rate.

It usually takes about 4 weeks to get a company into a Members Voluntary Liquidation. If there are no assets for the liquidator to sell, rather only cash to repay creditors and give back to shareholders, then once the company is in liquidation, the liquidation itself can normally be completed within a few weeks. More complicated cases where the liquidator has to sell assets and agree creditor claims.

In basic terms, a solvent liquidation can be implemented in 4 steps.

Step 1 You instruct Robson Scott to assist in placing the company into solvent liquidation, and we review the company’s finances.

Step 2 We prepare a statement of the company’s assets and liabilities, which the Directors sign as a Declaration of Solvency.

Step 3 A liquidator is appointed, and he begins the process of realising the company’s remaining assets.

Step 4 Once creditors and costs have been repaid in full, the liquidator distributes surplus money to the shareholders.

Some of the benefits of a solvent liquidation are:

  • It is a relatively inexpensive and straightforward process
  • Surplus assets can be bought back or transfer to shareholders ‘in specie’
  • Shareholders only pay 10% entrepreneurs’ relief on the money they receive
  • The liquidator does not prepare a report on the conduct of the directors
  • Creditors are paid in full

Negative aspects of a solvent liquidation are:

  • It is more expensive than dissolution
  • The directors are viewed to have likely committed an offence if it later materialises that the company was insolvent, not solvent ie. it was unable to settle all its debts from its assets

If this sounds of interest, please email ewall@robsonscott.co.uk or phone 0191 303 7170

What is Dissolution?

“I have stopped trading, and no longer owe any money to my creditors – how do I officially close my company?”

Dissolution, also known as Striking Off is applicable only if you have a company that has ceased trade for over three months and no longer has any assets. Before dissolution, your company must have already paid off all its debt – this is important, as if you dissolve a business whilst debt is still outstanding, you could be held personally liable and incur considerable costs if the company has to be resurrected! If done correctly, dissolution itself is straightforward requiring only a few letters and some form filing at Companies House.

The whole process would normally take approximately 4 months, as 3 months notice needs to be given at Companies House. However, there are no awkward creditors’ meeting to contend with, and as such, it’s viewed as a pain free way of closing a business.

Some of the benefits of dissolution are:

  • It is a relatively inexpensive and straightforward process
  • You can transfer remaining assets to yourself
  • It avoids a formal report on the conduct of the directors
  • Creditors are paid in full

Negative aspects of dissolution are:

  • It does not terminate contracts or finance agreements.
  • Most stakeholders can apply to resurrect the company, if:
    – The correct procedure wasn’t followed
    – The company had been trading within the three months prior to applying to dissolve
    – The directors have committed fraud
  • If there were outstanding liabilities when you dissolved the company you might be held personally liable

If this sounds of interest, please email ewall@robsonscott.co.uk or freephone 0191 303 7170

 

Agreeing the plan

The first stage in any business shut down is to make contact with Robson Scott for us to review all of your businesses financial records. Once we have undertaken this review, together we will formulate a plan. With the information you have provided, we will look to cover all aspects of shutting down your business… We will look at whether you have any personal guarantees, and formulate a way of dealing with these. We will consider your actions prior to liquidation and give you an honest appraisal as to how that might affect you personally. If we think you may require more advice on this, we will recommend specialists firms who may help. We will consider your employees, and the effect on them. If necessary, we will guide your employees through any redundancy process. We will consider your personal circumstances. And we will consider whatever other issues, you or us consider relevant to the overall plan. The best thing about getting to this stage is that its FREE. We don’t look to start charging until we have agreed on the plan forward!

Implementing the plan

We agree terms and our charging structure with you at this point, and then work together to implement the plan. Depending on the best type of shut down for your circumstances, this is likely to involve one of either Dissolving your business; Liquidation (sometimes called a Creditors Voluntary Liquidation “CVL”); or even a Solvent Liquidation (sometimes referred to as a Members’ Voluntary Arrangement “MVL”). Where we are unable to offer a service but it is still an integral part of the plan, we will introduce you to a partner firm specialising in that area. To get the best feel for how we set up and implement these processes, please read ‘What our Clients Say’.

For more details on the various options, click on the links at the top of the page, such as ‘Whats is an insolvent Liquidation?’ .

Other Topics

Business RescueCreditor Help | Directors’ Help | Tax Problems