The Alternatives to Selling Your Business

Voluntary Liquidation

The facts on voluntary liquidation (CVL)

• Voluntary Liquidation is one way of dealing with mounting debts which a company cannot pay. The whole process can be very complicated, expensive and take many years to complete.

• Voluntary Liquidation is initiated by the directors and must be agreed to by 75% of the company’s shareholders in a formal meeting. One small dissenting shareholder can often prevent the CVL process from happening.

• The directors must attend an online creditors meeting so they can be questioned and called into account by the creditors.

• Liquidation brings a company to an end. It must stop trading and eventually it will cease to exist. The staff are dismissed and they must claim redundancy from a government scheme and register as unemployed. Often the directors themselves are unable to claim redundancy pay.

• The director’s involvement in a company ceases once it is liquidated. Any money they have invested in the company is lost.

• The typical cost of a CVL is £6,000 plus VAT, payable upfront. Further fees will be payable during the liquidation process. Some liquidators charge more than £700 an hour for their services and their staff.

• Any personal guarantees given by the directors for the company’s debts will be called in. It is not unusual for directors to be made personally bankrupt following the liquidation of their company.

• It takes between 6 months and 6 years to complete the CVL process. Generally liquidations last for 2–3 years.

• It is rare that creditors recover any of the money they are owed in a liquidation. They are never keen to deal with the directors again in the future.

• Directors have to pay for any assets they want to buy back from the liquidator. They cannot use the companys trading name again for 5 years unless they comply with very strict legal processes.

• Dividend payments taken by directors in the past and other monies they have withdrawn from the company are sometimes declared to be illegal and have to be repaid to the liquidator plus their costs.

• The liquidator has a legal duty to investigate the directors which can result in them being disqualified from acting as directors in the future.

Company Voluntary Arrangement

The facts about a company voluntary arrangement (CVA)

• A CVA is another way of dealing with mounting debts which a company cannot pay. It is an alternative to liquidation.

• The CVA process can be very complicated, expensive and can take many years to complete.

• A CVA is initiated by the directors and must be agreed to a majority of the company’s shareholders in a formal meeting. So if there are just two equal shareholders, then they must both agree to the CVA process to allow it to happen.

• The directors must attend an online creditors meeting so they can be questioned and called into account by the creditors.

• The creditors can vary the terms of a CVA to make it more favourable to them. Any money that the directors are owed by the company cannot be included in the CVA and has to be written off.

• The typical cost of a CVA is £5,000 plus VAT, payable upfront. There are always further costs to pay during the CVA. Some insolvency practitioners charge more than £700 an hour for them and their staff to supervise a CVA.

• It takes between 18 months and 5 years to complete the CVA process. Most CVAs last for 3-5 years.

• A CVA allows creditors to get repaid a proportion of what they are owed over a long period of time. They are rarely repaid in full.

• In a CVA, a company’s assets are held in trust for the creditors and cannot be sold.

• The insolvency practitioner who supervises the CVA has to review the company’s trading during the CVA. If business improves, additional payments will have to be made by the company into the CVA.

• A CVA is more likely to fail than actually succeed. When a CVA fails, the company will automatically proceed into liquidation.