Frequently asked Questions
FAQ Categories
Should I Liquidate My Company?
A company can only be placed into CVL if it is insolvent. This is determined by one of two tests, the balance sheet test (are the company’s assets less than its liabilities?) and the cashflow test (is the company unable to pay its debts as they fall due?). If either or both tests are answered in the affirmative, then the company is deemed insolvent.
If your company is trading at a profit, you can continue trading purely to settle all liabilities even if it is on a deferred basis. This will enable your company to avoid CVL. You can then consider the alternatives to CVL (see the questions in respect of Dissolution and Strike Off, below).
If the company is trading at a loss or has ceased to trade, then the only way to avoid CVL will be by settling liabilities from either one source or a combination of funds deriving from your company’s assets, personally or from a third party.
Yes. There may be the possibility of sourcing a third-party purchaser of the company’s shares who is then willing to continue trading the business with additional investment. Unless you are aware of such a purchaser, finding one to buy and subsequently invest in an insolvent business will prove difficult.
Yes. Dissolving a company is undertaken by its directors. It is an option when a decision has been made to wind up the company’s affairs, for whatever reason. Dissolution is also known as voluntary strike off. You are permitted to dissolve your company if you meet three criteria. These are that your company (i) ceased to trade or conduct any other business activities in the three months prior to dissolution (ii) did not change its name in the three months prior to dissolution and (iii) is not threatened with liquidation and does not have any agreements with creditors in place in relation to settling its liabilities.
This is not advisable as dissolution does come with risks if the criteria are not met or the dissolution process has not been followed correctly, an interested party could object to the dissolution continuing. Third parties who are dissatisfied with the company for whatever reason may seek to restore it with a view to bringing actions against former directors or associated individuals. Also, the Insolvency Service can disqualify directors and pursue them personally for a contribution towards the company’s liabilities if it is considered that the dissolution process was abused to avoid paying the company’s debts.
You can apply to dissolve your company via Companies House using this link: Apply to strike off and dissolve a company – GOV.UK (company-information.service.gov.uk). The service costs £8. Given the fact that there are various steps to follow to enable dissolution, including notifying any remaining creditors and other interested parties, many companies may look to pay a third party who is able to assist with the process.
If your company has creditors, then doing nothing may result in one or more of them bringing an action. Typically, this can take one of two routes: Debt Recovery Proceedings or Winding Up Proceedings. Also, the Registrar of Companies can strike off a company if they believe that the company is not in operation. This is usually because the company has not complied with filing requirements, such as failing to submit an annual confirmation statement.
A creditor may institute court proceedings to recover a liability. Proceedings will be instituted in either the County or High Court, depending on the amount of the debt due. If successful, a record of the Judgement will remain on the company’s credit file for a period of 6 years which will impact upon current or future credit facilities. Judgement enables the creditor to then seek enforcement. This may be by way of a charging order over the company’s property interests, garnishee proceedings over the company’s funds or instructing a Sheriff or Bailiff to attend the company’s premises to secure assets in satisfaction of the debt.
A company creditor can issue winding up proceedings against a company that owes it £750 or more. Before doing so, the creditor must prove that the company cannot pay its debts. This can be achieved by either serving a Statutory Demand against the company demanding that the debt (which may or may not be a Judgement Debt) be paid within 21 days. Alternatively, failure to pay a Judgement Debt or simple letter of demand, may enable the creditor to commence winding up proceedings. Proceedings are commenced by way of presentation and subsequent service of a winding up petition against the company. This sets a hearing date for the court to determine whether to grant a winding up order.
Once a winding up order is made, the company is placed into Compulsory Liquidation. The directors immediately cease to have control of the running of the company. The Official Receiver will look to either take the appointment as Liquidator or appoint / permit the appointment of a private sector Liquidator. The Liquidator will then set about winding up the company’s affairs, to include investigating its directors’ previous activities. Any actions undertaken between the presentation of the winding up petition and the making of the order will come under extreme scrutiny and could be reversed.
A Compulsory Liquidation is much slower. The length between the presentation of a winding up petition and the making of the winding up order can take up to several months. During that time the petition may become public knowledge which usually results in the company’s bank account being frozen.
A CVL enables the directors to work with a proposed Liquidator to deal with matters in an orderly way. This means that the liquidation can be planned to take place on a scheduled date to address matters at the right time, either prior to or immediately after the date of appointment. This will have many benefits, including the preservation of the company’s assets, advising both customers and creditors of the position, dealing with employees’ claims expeditiously and ensuring that the directors do not breach certain legal requirements that may leave them exposed.
How Does The CVL Process Work?
The Liquidation Process is progressed by both the company’s directors and shareholders. Provided that these parties work within the necessary time frame and provide the requisite information, the company can be placed into liquidation within 3 weeks of initial instruction.
There are essentially 5 stages: i) the signing of an engagement letter by the company instructing the process to begin, ii) the completion of a factual questionnaire which provides the necessary information for all statutory requirements to be undertaken, iii) the delivery of notices to shareholders and creditors informing them of pre-scheduled events at which resolutions will be sought to place the company into Liquidation and agree to the proposed choice of Liquidator, iv) the preparation of a director’s report that is circulated to creditors and v) the holding of the scheduled events and appoint the Liquidator.
The CVL process is designed to avoid having physical meetings. However, a physical meeting will be required to take place if 10% of creditors (either by value or number), or 10 individual creditors, make a request to do so or 10% of creditors (by value) object to any of the proposed decisions. The purpose of such a meeting would be to discuss both the Company’s affairs and proposed choice of Liquidator. At the meeting, the creditors can either ratify the proposed Liquidator’s appointment or seek that this post is filled by an alternative Licenced Insolvency Practitioner. The creditors’ alternative Liquidator will only be appointed if they have the support of more than 50% in value of the creditors who vote at that meeting. Objections by creditors are very rare and most of the time physical meetings are never requested.
The cost of assisting the company to be placed into CVL is known as the pre-appointment fee. This covers the work required to prepare the paperwork to convene the requisite events and deal with statutory requirements. These are settled either from the company assets or from the directors’ personal funds / those of a third party. The costs for the work undertaken after the company is placed into Liquidation are known as post-appointment fees and are paid out of any realisations achieved from the sale of the company’s assets and recovery of any money owed to the company. Accordingly, a proportion or all of those fees may be written off.
Prior to appointment, the Proposed Liquidator’s firm assists the company with the preparation work necessary to place it into Liquidation. The appointed Liquidator is then under a duty to act in the interests of the company’s creditors. In doing so, the Liquidator’s role includes recovering and realising the company’s assets, ensuring distribution of any proceeds in accordance with an order of priorities, investigating the company’s affairs and conduct of its officers, providing a report to the Insolvency Service on the directors’ conduct and bringing any necessary proceedings to overturn certain pre-appointment transactions to make recoveries for the benefit of the estate
The length of time that it takes to complete all post-appointment matters depends on each case. For a simple case, all requirements can be completed within 12 months. However, more complicated matters can run on for several years or more, particularly if legal proceedings have been commenced. Once all post-appointment formalities have been addressed, the Liquidator will produce a final report to creditors and file the necessary forms to close the liquidation. The company will usually be automatically dissolved three months following closure.
It is essential that you have confidence and trust in your choice of Liquidator to ensure that the CVL of your company is handled correctly; ensuring that the interests of all stakeholders are dealt with both quickly and compassionately and that all regulatory requirements are fully complied with.
SFP is an award-winning Restructuring firm and are the preferred licensed Insolvency Practitioners to the majority of the top contractor accountants in the market, as well as a significant number of Chartered Accountancy firms across the UK. We have been trading as an Insolvency Practice for over 20 years, providing award winning service to 1000s of clients.
Does the Liquidation of my Company Have an Impact on me Personally? (Disqualification Proceedings and Compensation Orders)
Yes. When a company is liquidated, the conduct of its officers is investigated by the Liquidator. Within 3 months of the placing of the company into Liquidation, the Liquidator must provide the Insolvency Service (a government run body) with a report of all findings.
The report is required to provide details of all findings that could constitute adverse conduct. Amongst other things, this will include wrongful or fraudulent trading, transactions at an undervalue, preferences, extortionate credit transactions, overdrawn director loan accounts, failure to pay HMRC liabilities, misfeasance, and illegal dividends
Once the report is received by the Insolvency Service it will decide whether to bring disqualification proceedings. The decision will depend upon the severity and the number of the infractions that have taken place. Previous business failures will also be considered. The same approach will be applied to the period of disqualification subsequently sought.
Not necessarily. Just like any other type of court process, disqualification proceedings can be defended by a director. Similarly, an agreement can be reached between both parties to avoid a court process whereupon a disqualification undertaking can be entered into.
The minimum period for disqualification is usually 2 years, with the maximum being 15 years. Disqualification prevents a person acting as a director (including as a shadow director) in relation to any UK registered company or an overseas company which has connections with the UK. Breaching a disqualification order can result in imprisonment and/or a fine.
Yes. Following a director’s disqualification, the Secretary of State has the power to seek a compensation order against that person. Compensation order proceedings must be brought within 2 years of either the date that the disqualification order was made, or the disqualification undertaking was executed.
For this to be successful it will have to be proved that the director has caused quantifiable loss to one or more creditors of the insolvent company that they were director of at the time. If shown, the director will be ordered to make payment to compensate those creditors. The fact that a disqualification undertaking was entered into does not mitigate the chances of an action for a compensation order taking place.
This will ultimately depend upon your actions and the severity of their consequences, whilst you were acting as a director of a company that is subsequently placed into Liquidation. What constitutes activities that would result in disqualification proceedings depends upon each circumstance. However, the bar is reasonably high and out of thousands of liquidations every year only a tiny percentage of directors do get disqualified. A director who is experiencing a first-time failure and/or has not had a flagrant or complete disregard of his duties, is unlikely to have proceedings brought.
Yes. The legislation providing for directors of liquidated companies to be disqualified or ordered to pay compensation apply similarly to directors of dissolved companies.
There are various things that directors can do to demonstrate that they attempted to act in a way that was not in contravention of the company’s and creditors’ best interests. These include holding regular board meetings to discuss the company’s finances, recording the decisions made and thinking behind them, keeping financial records up to date and seeking professional advice at an early stage. The most important action is to act quickly and responsibly.
Yes, you can still be a shareholder and employee of a company even though you may have been disqualified. You must not, however, act in a directorial capacity.
Does the Liquidation of my Company Have an Impact on me Personally? (Other Recovery Actions)
Yes. The Liquidator has powers to pursue any claims that surfaced because of the investigations that were undertaken when providing a report to the Insolvency Service.
There are various potential claims arising from breaches of Company law. These include breaching fiduciary duties (known as misfeasance), paying illegal dividends and misuse of government support schemes during the Pandemic. There are also breaches of Insolvency law which include fraudulent and wrongful trading, preferences, and transactions at an undervalue (collectively known as antecedent transactions). The Liquidator will also pursue any overdrawn director loan accounts.
Yes. Claims can be made against other parties who gained some form of unfair benefit in the period leading up to the company’s insolvency. This may have resulted from being preferred ahead of other creditors or receiving dividends when the company was insolvent at the time.
This will depend broadly upon the type of claim. Examples of orders include being liable for the company’s debts (for wrongful trading), repaying money received (for illegal dividends, overdrawn director’s loan accounts or preferences) or reversing a transaction (for a transaction at an undervalue).
Before deciding to pursue a claim, the Liquidator will look at the strength of the claim, considering any defence (already raised or that could potentially surface), whether the cost of the action can be met and the likelihood of recovery of funds if successful.
Yes. In doing so, the liquidator and their advisors may well be amenable to a negotiated settlement. They will consider the amount of recovery against the full amount of the claim and the financial circumstances of the party looking to settle.
Yes. The best way to proceed is to discuss any issues that you think could result in a claim with your choice of Insolvency Practitioner prior to placing the company into Liquidation. These will come to light in any event once an investigation is conducted. By addressing these in advance you will be able to start a dialogue at an early stage to potentially reach a resolution and avoid a legal process. More importantly, it may be the case that there are no grounds for a claim or that there is a legitimate defence for the company’s actions, putting your mind at rest right from the outset.
As far as we are aware, it should not affect your credit rating however this is something outside of our control and you may wish to seek your own advice. Companies House will show that you have been director of a company which has gone into Liquidation.
No. You will still be liable to honour any commitments that are owned by you personally, such as any personal guarantees.
Which Claims are Usually Made Against Directors?
The most common claims are overdrawn directors’ loan accounts and the payment of illegal dividends. These make up a significant bulk of the claims against directors, as they can be very easy to prove. More recently, Liquidators have been looking at misuse of the Bounce Back Loans by directors.
Yes. These are assets of the Company, and any appointed Liquidator will request repayment of them back into the liquidation estate.
Yes. For Directors’ Loans, you may have some outstanding salary or expenses that you paid on behalf of the company, which you are legitimately allowed to deduct against your loan. In the case of illegal dividends, you may be able to demonstrate that your company was not insolvent at the time that the dividend was declared, which may either reduced or even extinguish the debt claimed. In both instances, your accountant may be able to help you establish the position.
If you have no assets to realise and no income to repay your director’s loan account or illegal dividends, the Liquidator may decide not to pursue the amounts owed due to them being unrecoverable. Prior to doing so, the Liquidator is likely to request a sworn statement of affairs from you. The purpose of this is for you to provide a statement demonstrating your financial position and requiring that you attest to its contents being true.
You may have asset(s) to repay the amounts due, but you are unable to realise them in the short term. It would be possible to reach an agreement with the Liquidator for you to realise the asset(s) and subsequently repay the monies owed at some future date. You may, instead of having any assets, be generating an income which could enable you to reach an agreement with the Liquidator for you to repay the debt over a period.
Given that your circumstance will be unique, it is wise to discuss the repayment of any outstanding liability owed by you with your proposed Liquidator, prior to their appointment. This will enable you to obtain a full understanding of how this will be dealt with post appointment and to potentially try to lay the foundations of an agreement going forward following the placing of your company into Liquidation. Aside from looking at your financial position, an appointed Liquidator may, in certain circumstances, also accept accelerated receipt of the debt in exchange for a lesser sum.
No. The failure of a Company owing a Bounce Back Loan will not result in you becoming automatically liable. Bounce Back loans were introduced to assist businesses during the Pandemic to address any reduction in turnover and / or profitability to keep the company alive. Directors who used those funds to continue to trade should not come under criticism, even if the company owing the debt failed prior to it being repaid.
A director whose company failed for legitimate reasons will not be asked to repay the loan personally. However, a director who utilised funds inappropriately to purchase personal assets, fund an alternative business or use the monies for non-trading reasons may be pursued by an appointed Liquidator to repay the funds used in respect of those transactions. Also, any director who applied for a bounce back in the knowledge that they did not satisfy the required lending criteria could also find themselves subject to an action by the Liquidator.
If using the bounce bank monies inappropriately or applying for one could equate to fraud, then this could be considered grounds for the Insolvency Service to pursue the disqualification of a director.
This could also bring a risk of criminal action being taken against a director. Directors who have concerns regarding this matter may wish to seek independent legal advice.
No. The Bounce Back loan was supposed to be used to ensure the business could survive through the Pandemic, which includes using it to pay salaries, including those of a company’s directors. If, however it is the case that Bounce Back Loan monies have been used to pay excessive salaries not in line with the normal course of business, then this could bring rise to a claim by the Liquidator.
As in the case of directors’ loan accounts or illegal dividends, the Liquidator may either agree not to pursue the debt or to reaching an accommodation with you in terms of the repayment timeframe or settling with a reduced amount, based upon your personal circumstances. Again, it is wise to discuss the repayment of the liability owed by you with the proposed Liquidator, prior to their appointment.
What Can I Do Before and After Liquidating My Company?
Yes. However, you should only do so if it is of benefit to the company’s creditors and on the basis that you do not incur any credit that cannot be repaid. Most of the time this will not be the case and you should cease trading immediately. Examples of benefits of continuing to trade include completing work in progress that can subsequently be invoiced, enhancing the value of certain assets, and preserving goodwill with a view to selling the business. It is advisable to discuss the position with your choice of Insolvency Practitioner before deciding to continue to trade.
No. The control of the business affairs will automatically transfer to the appointed Liquidator, so the directors have no power to trade the company. If the company has continued to trade up to Liquidation, it will usually cease to do so on the date it is placed into Liquidation. There are instances when trading in a certain format continues following Liquidation, but this is rare and is under the remit of the Liquidator, whilst having full regard to legal advice.
If a creditor contacts you prior to the company being placed into Liquidation, you should explain that following a review of the company’s financial position, the Board of Directors has decided to commence proceedings to place the company into Liquidation. You can also add that all creditors will be circulated a pack of information by the proposed liquidator within the next few days which will fully set out the position and the process. Should the creditor be dissatisfied with that explanation or raise technical queries, you should provide details of the proposed Liquidator’s office and relevant contact, who will then assist them further.
It is advisable to speak to the proposed Liquidator to decide how best to recover the company’s book debts. You will probably be advised to continue with collections prior to the placing of the company into Liquidation. Once the company is in Liquidation, the Liquidator will seek to recover any outstanding debts although given your relationship with these former customers, your assistance may still be required. You may be able to reach an agreement with the Liquidator to charge for the work that you undertake to collect the company’s debts, provided that this is at market rate.
Can I Buy the Business and Assets Back?
Yes. You can be a director of multiple companies at any one time. You can also set up a company whose business activities are similar or the same as your previous business, which has or will be placed into Liquidation. You will not, however be able to hold the office of director of a company (either formally or indirectly), should you subsequently be disqualified following disqualification proceedings.
Yes. However, in doing so you must take care that they are sold for full market value to ensure that it cannot be subsequently asserted that these were sold at an undervalue, resulting in you potentially having to personally repay any determined shortfall to the company’s estate. You should therefore speak to your choice of Insolvency Practitioner to get advice about how best to proceed before committing to any asset sales.
Yes. You can purchase your company’s business and/or assets. Typically, these would include stock, vehicles, debtors, machinery, leasehold and freehold interests, fixtures and fittings, intellectual property, and goodwill. If you are looking to purchase prior to the date that the company is going into Liquidation, you should speak to your choice of Insolvency Practitioner to obtain advice concerning how you can demonstrate that the correct price was achieved. If a purchase is to take place once the company is in Liquidation, the onus will be on the Liquidator to show that they achieved the best price in the circumstances. In both instances, the business and assets will need to be bought for market value.
Yes, it’s possible to come to an agreement with the liquidator to buy the business and assets and pay the agreed consideration over a period of time which is normally subject to you providing a personal guarantee.
You should bring this to the attention of your proposed Liquidator.
If there is value attached to the business and assets then the appropriate consideration should be paid to the Liquidator once appointed.
Yes, in some circumstances. The general rule provides for a 5-year prohibition (starting from the date of Liquidation) on being a director or managing a company or business, which uses any name by which the Company was known or a similar name which suggests an association. However, there are several statutory exceptions which enable the re-use of a name provided certain criteria are complied with. Click here to obtain full details of these exceptions and criteria.
What Are My Landlord’s Rights?
A landlord has several options available to it for non-payment of rent prior to a company being placed into liquidation. These include bringing Court proceedings, serving a Statutory Demand, presenting a Winding Up Petition, taking control of goods held on the premises, applying the debt against a rent deposit deed (if one is in place) or bringing the lease to an end by way of forfeiture (or re-entry). Each one of those options presents different challenges for a tenant which in some cases, such as taking control of goods and forfeiture, can immediately prevent its ability to trade.
A landlord’s position alters once a company is in liquidation. Court proceedings can still progress, but this will prove to be a wasted exercise since there is little that a court could do to improve the landlord’s position given that the Liquidator’s duty is to act in creditors’ interests anyway. The right of forfeiture is still maintained, although it will be in most landlords’ interests not to exercise this to obtain the benefit of business rates relief. A liquidator has the power to make an application for a stay of proceedings if it is for the benefit of the company’s creditors. A Liquidator can disclaim the lease, effectively bringing it to an end.
A rent deposit is an asset of the company and will be looked to be realised by the Liquidator once the company is placed into Liquidation. A landlord, however, is permitted to apply any outstanding rent arrears and costs of dilapidations against the value of the rent deposit. The Liquidator will seek to recover the amount of the rent deposit and the landlord will provide a breakdown setting out any amounts that have been applied against it, returning the balance of the deposit (if any).
A landlord can lodge a claim in the company’s liquidation for any rent arrears, all accrued interest, and dilapidations. If the lease has not been disclaimed, the claim will continue to increase as and when rent falls due. If, or when the lease is disclaimed, the position changes as the lease has come to an end from the company’s perspective, although this can create a technical argument as to the financial amount that is owed. Whilst it can be argued that the onus is on the landlord to now mitigate the loss, the landlord is in turn potentially able to make a claim for future loss. All financial claims made in the liquidation by the landlord (after first applying these against any rent deposit) will be unsecured, meaning that the landlord will rank amongst the other creditors in that category.
In many instances a company’s premises are fundamental to its activity. In view of this and given the various rights afforded to a landlord, it is sensible to have a dialogue as soon as you ascertain that there are difficulties ahead in meeting rent obligations. At that stage, it is best to openly explain the position, asking if the landlord is prepared to negotiate a lower rent repayment and/or payment holiday. At the very least you will be able to ascertain whether your landlord is amenable to working with you, which may ultimately determine if you are able to try to turn the company around or look to place it into Liquidation.
The landlord has extensive rights which could disrupt ongoing business activities and/or realisations for the benefit of a company’s creditors. Accordingly, it would be advisable to refer the landlord to the proposed Liquidator, if a dialogue is required at any stage prior to the company being placed into Liquidation.
SFP has a dedicated property team to assist with all property related matters pre or post liquidation and can assist you with formulating a strategy on the best way of communicating with your landlord and help bring a lease to an end or assign it to a third party.
What Are My Employees’ and My Rights?
Liquidation will result in the company ceasing to trade. This may take place prior to the company being formally placed into Liquidation. The cessation of trade means that all employees will need to be made redundant.
If the company ceases to trade prior to appointment, you will need to make the employees redundant. However, SFP has a dedicated in-house employment expert, who will be able to guide you though the redundancy process and can also deal with all your employees direct once you have formally instructed us. If the company is trading up to the date of appointment, the Liquidator will usually make the employees redundant immediately following the placing of the company into Liquidation.
Although the company may have ceased to trade, there may be some work to do to wrap up the company’s affairs and accounts. It may therefore be sensible to consider keeping on certain staff for a short period to assist with this work.
Depending on the number of employees and where they are based, there may be legal requirements to give notice of the proposed redundancies to the employees and the Insolvency Service. It is particularly important to meet the requirement to notify the Insolvency Service, as a failure to comply could be a criminal offence. Again, if instructed, SFP can assist you in this area.
Employees have four potential avenues of financial entitlement available to them which can be submitted to the RPO (Redundancy Payments Office). These are Redundancy Pay, Accrued Holiday Pay, Arrears of Wages and Statutory Notice Pay.
The payments made by the RPO are capped, so this can mean that your or your employees’ claims are not paid in full by the RPO. Any claim remaining after the RPO’s payments is still owed to you/your employees by the company in Liquidation. The Liquidator will get in touch with you/your employees if there is sufficient money in the company’s estate (after the costs of the Liquidation) to pay all or part of these claims.
Directors are permitted to claim under the same categories to which their employees are entitled, provided you are determined to be an employee of the company. Accordingly, Directors are required to complete an additional form for the Redundancy Payments Office to assess whether their status in the company was as an employee.
Our in-house employment expert can give you an informal view on whether your claim would be accepted by the RPO and if so, the amount you could be entitled.
Once a company is placed into Liquidation, we assist with the claims process for all your employees. This includes employees that were made redundant prior to the placing of the company into Liquidation. The process is as follow:
- we inform the RPO of potential claims and request a case reference number;
- upon receipt, we send a form RP1 fact sheet to employees for them to complete (we can assist);
- we review the completed RP1s and verify the information with the employees and with reference to the company’s records;
- we assist with the submission of information to the RPO; and
- we monitor the pay-out to the employees, which is generally within 3-6 weeks.
In the case of Directors’ claims, we provide an additional form RP3 for them to complete to assess their employment status (which we can assist with). We will then also submit this to the RPO.
We have a dedicated department which deals with employees’ claims ready to assist at any stage of the process. Employees are required to submit their claims online themselves, but we will be there to ensure that those submissions have been completed correctly.
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