Creditors Voluntary Liquidation or CVL
Over the last five years we have dealt with numerous Contractor Companies where, for various reasons, the Company has got into difficulties. The usual reasons are ill health, or failing to find a new contract. In all cases the result has been the same. The director has continued to withdraw the funds in the Company’s bank account that were set aside to pay Corporation tax and VAT.
Eventually HMRC will demand payment of sums due to them. Where possible we advise the director to try and negotiate a Time to Pay agreement with HMRC. They expect payment of all arrears within 12 months and all future tax to be paid on time. If the director does nothing HMRC’s ultimate sanction is to issue a Winding Up Petition to have the Company wound up by the Court. Where this occurs the director will invariably become liable to repay some or all of this money that they have taken as either an Overdrawn Loan Account, or Unlawful Dividends. The problem for the director with a Winding Up Petition, is that ultimately a Liquidator can be appointed by the Official Receiver.
Alternatively the director can put the Company into CVL. Any sums that the director owes the Company are still repayable, however we will be discussing with the director how they intend to repay these sums from before we are appointed. We have directors on what effectively amount to Payment Plans ranging from 12 to 60 payments. We have been working in this sector long enough to recognise that it is unrealistic to say 12 months to 60 months as Contractors income is not that reliable. One of the main reasons Contractors fail to keep to Time to Pay agreements with HMRC is the irregular nature of their income.
We have periodically come across examples where directors have asked us about CVL, been advised that they will have to repay monies and have the sought alternative advice. We have then been told that they have been advised, (rarely from a Licensed Insolvency Practitioner) that they won’t have to repay Overdrawn Loan Accounts/Unlawful Dividends. Our standard advice when this occurs is for them to ask for confirmation of this in writing. Ultimately most directors realise that if they have taken out too much money it will have to be repaid.
Please call Lines Henry on 0800 012 6649 to talk about your options