CVL FAQs

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:

• The signing of an engagement letter by the company instructing the process to begin.
• The completion of a factual questionnaire which provides the necessary information for all statutory requirements to be undertaken.
• 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.
• The preparation of a director’s report that is circulated to creditors.
• The holding of the scheduled events and appointment of the Liquidator.

The CVL process is designed to avoid having physical meetings. However, a physical meeting will be required if:

• 10% of creditors (either by value or number), or 10 individual creditors, request a meeting.
• 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 the proposed choice of Liquidator. At the meeting, creditors can either ratify the proposed Liquidator’s appointment or seek to appoint an alternative Licensed Insolvency Practitioner. The alternative Liquidator will only be appointed if they receive 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 meet statutory requirements. These fees are settled either from the company’s 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**. These are paid out of any realizations 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. Once appointed, the Liquidator has a duty to act in the interests of the company’s creditors. Their role includes:

• Recovering and realizing the company’s assets.
• Ensuring distribution of proceeds in accordance with an order of priorities.
• Investigating the company’s affairs and the conduct of its officers.
• Providing a report to the Insolvency Service on the directors’ conduct.
• Bringing any necessary proceedings to overturn certain pre-appointment transactions to make recoveries for the benefit of the estate.

The length of time required to complete all post-appointment matters depends on the complexity of the case:

• For a simple case, all requirements can be completed within **12 months**.
• More complicated cases, particularly those involving legal proceedings, can take **several years or more**.

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 managed efficiently and compassionately while fully complying with regulatory requirements.

SFP is an award-winning Restructuring firm and is the preferred licensed Insolvency Practitioner for many 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 thousands of clients.

Yes. When a company is liquidated, the conduct of its officers is investigated by the Liquidator. Within 3 months of the company being placed into Liquidation, the Liquidator must provide the Insolvency Service (a government-run body) with a report of all findings.

The report must provide details of all findings that could constitute adverse conduct, including:

• Wrongful or fraudulent trading
• Transactions at an undervalue
• Preferences
• Extortionate credit transactions
• Overdrawn director loan accounts
• Failure to pay HMRC liabilities
• Misfeasance
• Illegal dividends

Once the report is received, the Insolvency Service will decide whether to bring disqualification proceedings. The decision depends on:

• The severity of the infractions
• The number of infractions
• Previous business failures

The same approach applies when determining the length of the disqualification period.

Not necessarily. Disqualification proceedings, like any court process, can be defended by a director. Alternatively, an agreement can be reached to avoid court proceedings by entering into a disqualification undertaking.

Disqualification typically lasts between **2 and 15 years**. It prevents an individual from acting as a director (including as a shadow director) for any UK-registered company or an overseas company with UK connections.

Breaching a disqualification order can result in **imprisonment and/or a fine**.

Yes. After disqualification, the Secretary of State has the power to seek a **compensation order** against the disqualified director. Compensation order proceedings must be brought within:

• 2 years of the disqualification order being made, OR
• 2 years of the disqualification undertaking being executed

To succeed, it must be proven that the director caused **quantifiable loss** to one or more creditors of the insolvent company while acting as a director. If successful, the director will be ordered to compensate the affected creditors.

Entering into a disqualification undertaking does not prevent a compensation order from being pursued.

This depends on your actions and the severity of their consequences while you were a director of a company that entered liquidation. However, disqualification proceedings are **rare**.

Directors with a first-time failure or those who did not flagrantly disregard their duties are **unlikely** to face proceedings.

Yes. The legislation covering director disqualification and compensation orders applies equally to directors of dissolved companies.

Directors can show they acted responsibly by:

• Holding regular board meetings to discuss the company’s finances
• Recording decisions and the reasoning behind them
• Keeping financial records up to date
• 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 if you are disqualified as a director. However, you **must not act in a directorial capacity**.

Yes. The Liquidator has the power to pursue claims that arise from the investigations conducted when preparing a report for the Insolvency Service.

Potential claims can arise from breaches of Company law, including:

• Breaching fiduciary duties (misfeasance)
• Paying illegal dividends
• Misuse of government support schemes during the Pandemic

Breaches of Insolvency law may also be pursued, such as:

• Fraudulent and wrongful trading
• Preferences
• Transactions at an undervalue (antecedent transactions)
• Overdrawn director loan accounts

Yes. Claims may be brought against individuals or entities that gained an unfair benefit leading up to the company’s insolvency, including:

• Creditors who were preferred over others
• Shareholders who received dividends when the company was insolvent

The type of order depends on the claim. Examples include:

• Being held personally liable for the company’s debts (for wrongful trading)
• Repaying money received (for illegal dividends, overdrawn director loan accounts, or preferences)
• Reversing a transaction (for transactions at an undervalue)

The Liquidator assesses the following before proceeding with a claim:

• The strength of the claim
• Potential defences (raised or anticipated)
• The cost of legal action
• The likelihood of successfully recovering funds

Yes. Liquidators and their advisors may be open to a negotiated settlement, considering:

• The amount that can realistically be recovered
• The total value of the claim
• The financial circumstances of the party seeking settlement

Yes. If you believe there may be potential claims against you, it’s best to discuss them with your chosen Insolvency Practitioner before liquidation. Addressing these concerns early can:

• Help you reach a resolution before formal investigations
• Avoid a legal process where possible
• Clarify whether there are actual grounds for a claim

As far as we are aware, liquidation should not affect your personal credit rating. However, this is outside of our control, and you may wish to seek independent advice.

Companies House will record that you were a director of a liquidated company.

No. You will still be personally liable for any commitments under your name, such as:

• Personal guarantees
• Loans in your name

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 reduce 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 reach 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.

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.

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.

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.

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 through 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 to.

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 follows:

• 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;
• 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.