We are often asked the question “When should a company shut down”. If you are a company director looking for a bit of advice because your business is now insolvent, you have come to the right place. I have helped many company directors take the right steps in either closing or liquidating a business or pre-packing a sale and starting again.
Firstly if your company is insolvent or is likely to be you have a duty as a director to close the company and not incur any further debt, unless you can be pretty sure that you can put in place a rescue plan to turn that business around. If you can’t then you need to liquidate the company yourself or take professional advice on how best to close the business in an orderly fashion.
By far the most popular choice is to engage an insolvency practitioner to call a meeting of creditors on your behalf, prepare the statement of affairs, hold the meeting and then deal with all the procedural aspects of liquidation necessary to make sure all creditors now what is going on and how they can participate in any dividend. This is called a CVL or creditors voluntary liquidation.
The CVL process will take about three to four weeks from start to finish. It takes about a week to get together the statement of affairs and then the creditors who are circulated with that report need to have two weeks notice of the meeting. The creditors may or may not turn up at the meeting. In my experience, they very often merely fax through a proxy and vote. It is necessary for a director to attend at the meeting in order to answer questions from the creditors on the reasons why the company failed. New rules which came into force in April, may make it easier to hold meetings by making provision for them to take place by telephone, thereby cutting costs.
The costs of the CVL which will probably be in the region of £5000 can come out of the assets of the company and indeed many businesses do have just enough assets or cash to take this final step. For some businesses, the central core of what the business does may still be profitable and so often directors will want to continue to trade. This is easily possible and a sale of assets can be arranged to a new company and a lease re-assigned by a landlord, which often leaves the new company trading on in the same line of work from the same premises.
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Tags: Company Shut, Shut, When Should
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