Creditors’ Voluntary Liquidation vs Business Rescue

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Creditors Voluntary Liquidation vs Business
Rescue
The latest insolvency statistics showed that the
number of company insolvencies had risen by 63
in October 2021, compared to October 2020 which
had 1,405. But the figure that stood out from
this data is the number of Creditors Voluntary
Liquidations (CVLs) 1,248 companies in October
alone, which is higher than pre-pandemic
levels. Entering into a CVL for many insolvent,
Covid-hit businesses struggling with debt is
proving to be a popular option. Its
cost-effective, it stops creditors taking further
action, assets are sold to pay off creditors, it
is an efficient process and, if the directors
conduct is not called into question, they can
often start another business.
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But is this route the right choice for your
business? Are there other options that may result
in not having to close the business for good?
Lets look at a Creditors Voluntary Liquidation
vs business rescue because in some circumstances,
a CVL could be avoided.
What is a Creditors Voluntary Liquidation and
its impact?

• A Creditors Voluntary Liquidation, or CVL, is a
  legal process to close an insolvent company that
  is unable to pay its debts. Directors and
  shareholders of the company voluntarily enter
  into a CVL
• rather than being forced into liquidation by
  creditors.
• The process must be handled by a licensed
  insolvency practitioner (IP) who will manage the
  sale of the companys assets, draw up and
  complete all the necessary paperwork, liaise with
  creditors and HMRC, place the required advert in
  The Gazette, ensure the creditors are paid in the
  correct sequence, i.e. priority creditors first,
  and investigate the directors conduct prior to
  and during the liquidation process.
• But liquidating a business is closure of the
  business theres no going back once the
  liquidation process has commenced. There are also
  financial implications in respect of any personal
  guarantees made by directors, which they are
  responsible for, and should the IP find a
  director has acted fraudulently, carried out any
  wrongful trading or traded when the company was
  insolvent, there is the serious matter of a
  potential prison sentence.
• Advantages and Disadvantages of a CVL
• There are pros and cons to a Creditors Voluntary
  Liquidation vs Business Rescue. The advantages
  are
• It is a voluntary decision by the companys
  directors and shareholders therefore they have
  not been forced into liquidation by a creditor.
• As the liquidation process is handled by the IP,
  the directors no longer have to deal with the
  creditors as the IP takes over.
• Any legal action by a creditor, including winding
  up petitions or appointment of a bailiff, is
  stopped.
• It is a cost-effective option to closing a
  company.
• Debts are paid off using the monies raised from
  the sale of assets and those that are not covered
  are written off, including any government bounce
  back loans of CBILS.
• While assets are sold to pay for the liquidation
  process, directors have the option to purchase
  any of the companys assets, including the
  company name, equipment and premises, but this
  must be at market value.
• There are no redundancy or restructuring costs
  involved.
• It is an efficient process and can be completed
  within a few months.
• The disadvantages are

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Creditors Voluntary Liquidation vs business
rescue its not always a clear cut decision and
all options should be considered. If your
business is struggling with debt and youre
finding it difficult to see a way out of the
problem, the first step is to seek professional
advice. Our highly experienced professionals at
Leading UK are on hand to help with advice on
business rescue and restructuring operations,
voluntary liquidation of solvent and insolvent
companies, and compulsory liquidation.
By Viv1 January 30th, 2022 Business Rescue
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