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What actually happens?

What actually happens?

The directors instruct an insolvency practitioner to help them place their insolvent company into liquidation.

Meetings of shareholders and creditors are held, placing the company into liquidation and appointing an IP to become its liquidator.

The liquidator then takes control.

A CVL is a process whereby the directors call a meeting of the shareholders and then a meeting of the creditors and seek approval to place the company into liquidation and appoint a liquidator. 

Usually those meetings are about two weeks away from when the directors sign the papers.

In that two week period various things happen:

  • the company ceases to trade
  • all the staff are met and are all made redundant
  • the IP secures the premises and assets waiting until the meeting of creditors to approve the liquidation before any assets are sold.

Once appointed as liquidators, the IPs have several duties to fulfil. One key duty is to safeguard and then sell the company’s assets. This usually consists of appointing professional agents to collect and sell the assets at auction. Sometimes assets do get sold back to the directors and creditors understandably feel aggrieved about this, but if directors do want to buy back the assets they must be purchased at market value and must be paid for.

Another key part of our role as liquidators is to investigate what actually went wrong and file a report with the Insolvency Service.  

Hopefully at the end of the liquidation process there are funds and we then distribute the proceeds to creditors in order of priority. More often than not the company’s bank will have a debenture over the assets and will receive the first share of any available distribution. Any remaining money is then distributed to creditors equally.

Liquidation is not a happy ending but it can take a great deal of stress of the owners of a business. No one plans to fail but it happens. The pressure increases on all concerned as a business declines and the directors end up facing more and more problems; 

  • Can they pay the staff this month? 
  • Should they be ordering goods they may not be able to pay for? 
  • How quickly will HM Revenue and Customs send in a bailiff? 

These are typical of the questions we answer at any initial meeting and the sooner someone who thinks they may need insolvency advice gets that advice the safer they are.

David Kirk ACA FABRP

David Kirk

David Kirk is a Chartered Accountant and Licensed Insolvency Practitioner.
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