Advantages and Disadvantages of Creditors Voluntary Liquidation

Faced with liquidation you may be unsure of how to proceed but in most cases your IP will recommend Creditors Voluntary Liquidation, here are the advantages and disadvantages. Cash flow problems are very common in most businesses these days, sometimes these cash flow problems get more serious and your business is no longer solvent. Faced with numerous debts you may feel trapped and stressed, but being proactive is often the best course of action and you should contact your Insolvency Practitioner about Creditors Voluntary Liquidation. Creditors’ Voluntary Liquidation (CVL) means that the company directors choose to close down the company, this is the most common form of liquidation as it is much better for directors than compulsory liquidation. If you feel your company is no longer turning a profit and cannot continue trading then a CVL may be your best option too.

Disadvantages of CVL

Disadvantages to Company Owners

  • your company will need to close down and stop trading, if this is not what you want then have a look at Administration or  CVA options
  • You will be investigated and if you have acted inappropriately with money you may be held liable
  • It is expensive, depending on the size of your company CVL fees can be in the thousands
  • If you have made any personal guarantees on loans or overdrafts they will be called in

Disadvantages of CVL to Creditors

  • There may be an impact to cash flow
  • Once the liquidators fees are paid and other priority creditors are paid there may be little left for your debt however something is better than nothing and you may be considered a priority in some cases
  • You cannot guarantee of recovery of debts from the directors unless they acted improperly
  • Bad debts will be written off
  • When assets are sold off they are often sold below book value therefore recouping less funds

Advantages of Creditors Voluntary Liquidation (CVL)

Benefits of CVL to Company Owners

  • If the business cannot continue to trade, this is a quick way of closing it down efficiently
  • You take the procedure into your own hands and have more control over appointing an IP you are happy with
  • It takes the pressure off debts, relieving pressure from banks and creditors
  • Minimises the risk of wrongful trading
  • With a limited company you can start a new business afresh
  • You can sometimes buy back assets

Benefits to creditors

  • You can move forward without having to waste time chasing for money and will get as much as they can afford towards the debt
  • Involved in the liquidator’s appointment and have a say in whether the CVL goes forward along with other creditors
  • You can be assured that the directors’ conduct will be formally investigated
  • You can reclaim VAT

One mistake many businesses make is to wait too long before speaking to an insolvency practitioner, at Lines Henry we speak to you directly and put business recovery at the forefront of our priorities. If you talk to us before things get unmanageable then a CVL may not be your only option and we can work out what is best for you and your company.