Why do so many companies that have outstanding debts such as corporation tax or bounce back loans choose to close down using a creditors voluntary liquidation?
Let’s look at the reasons why a business owner or director would choose this method to close their business.
Reasons why a business owner chooses creditors voluntary liquidation
1. Reputation Protection
One thing that might put off a lot of directors about a CVL is that there has to be an essential investigation into the conduct of the directors about the events, actions and decisions taken in the lead up to the liquidation.
This has to be conducted by a licenced insolvency practitioner who is overseeing the process and supplied to the Insolvency Service with their findings and recommendations.
It’s a process designed to uncover any illegal, dishonest or fraudulent activities that might have been committed with punishments ranging from fines and being disqualified from acting for a director for up to five years or more.
During the process, the practitioner will take a collaborative approach and will still look for explanations and evidence of decisions taken but aren’t looking to apportion blame. They want to get the best explanation to protect the directors in case there is any ambiguity.
The Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill gives the Insolvency Service new powers to go back and look at the conduct of directors in improperly closed or dissolved companies including potentially making those directors personally liable for any outstanding or unpaid debts.
This cannot happen if the business is closed with a CVL.
2. Cost Effectiveness
There are cheaper insolvency methods than a creditors voluntary liquidation.
They will usually cost from between £2,500 to £7,000 depending on the amount of work required but in a lot of ways you get what you pay for.
Insolvency practitioners don’t work for free but you are also buying their expertise and experience as well as a source of advice and knowledge that you can tap into whenever you need to.
They will be able to answer any questions you may have about the process and what happens and when. They will also be able to advise on any other ideas you might have including buying any assets or dividend stock from the business or even forming a new one with a similar sounding name.
3. They work
A CVL is a proven and trusted procedure that according to the latest Insolvency Service statistics out of 1,991 corporate insolvencies last month some 89% (1,777) were CVLs.
They can take as little as two weeks to complete depending on how complicated the case is and the essential meetings that have to be held between creditors and shareholders can be completed securely online.
Once completed all outstanding debts including outstanding bounce back loans, VAT or corporation tax arrears are all written off too.
For any business owner or director that is considering closing their business using a company voluntary liquidation – the first step is to get in touch with an expert.
BusinessRescueExpert handles thousands of successful CVLs, help you to understand the cause of insolvency and other insolvency procedures and will be able to advise on what the best methods would be depending on the individual circumstances of the company.