By John Bell, Director of insolvency firm Clarke Bell, which he founded in 1994.
The UK economy is in a fragile state as the impact of Covid-19 continues to bite and companies will be left reeling for some time to come. Company directors have had little choice but to borrow money courtesy of Government schemes both in the form of bounce back loans and have benefited from the furlough scheme just to survive. With further lockdowns in place and no imminent date set to re-open the economy, many directors are worried that they will simply not be able to hold out and hang on for much longer. Some are also concerned that they might be investigated for their financial conduct during this crisis and how they might be subject to scrutiny.
Whatever the situation, John Bell, director and founder of licensed insolvency firm Clarke Bell, urges company directors to take control of their situation and seek professional help as soon as possible.
The first question you need to answer is whether your company is solvent (has no debts) or is insolvent (can’t pay its debts).
Having answered this question, you can then decide on the best option for you. For struggling companies with little or no chance of survival, a Creditors’ Voluntary Liquidation (CVL) is often the best course of action to deal with the business debts and fulfil your legal obligations as a company director.
What is a Creditor’s Voluntary Liquidation?
If your company is struggling to keep its head above water and you have decided that it might be best to cut your losses and close down your company, then a Creditors’ Voluntary Liquidation (CVL) might be the best option for you once it is agreed by the shareholders. Liquidating your company voluntarily via this method, rather than a compulsory liquidation, is the best way of protecting your business reputation in the long run.
First and foremost, you should contact a licensed insolvency practitioner for some free and confidential advice to see if a CVL is the best option for you and your company. (They will tell you if there is a better option for your particular situation.)
If a CVL is the right solution for you and your company, the insolvency practitioner will then work with you and your accountant (where applicable) to collect all the necessary information to proceed with the liquidation. They will seek to gather a full list of creditors along with copies of accounts. As soon as the CVL process starts, your company will need to stop trading.
Your insolvency practitioner will lead you through the process step by step and you will need to hold a board meeting where the company directors meet to formally agree that the company is insolvent and cannot continue to trade. A members’ meeting will then be held and once this meeting is over your company will now be considered to be in formal voluntary liquidation. These meetings can normally be held online, so there is no need for face-to-face meetings.
Doing nothing is not an option when you are the director of a company which is facing financial difficulties – especially when, as a company director, you have a legal duty to do something about it.
It is important that you seek professional help to navigate the route that is best for you and your business. A CVL might not be the only option and an insolvency practitioner can discuss the alternatives with you.
In some cases, it might be possible to get the business restarted using a combination of an insolvency process and new finance. Other options include the lighter touch of a company voluntary arrangement (CVA).
Most firms of Insolvency Practitioners will give you with free and confidential advice. So, you really have nothing to lose by speaking to one. The sooner you get professional advice, the more options you are likely to have open to you. A lot of company directors wish they had spoken to the Insolvency Practitioner a lot sooner than they did – as it would have stopped them putting ‘good money after bad’ and avoided months of unnecessary stress and sleepless nights.