My company cannot pay its debts
According to government statistics, the total number of company insolvencies in England and Wales last year (2021) was 14,048, an increase of approximately 11% on 2020, but still below the total number of 17,166 in 2019.
So far this year (to the end of June 2022) the total number of registered company insolvencies has reached 8,997. Based on these figures, it is clear that the number of UK business facing financial difficulty are increasing.
Government support throughout 2020 and 2021 prevented many businesses from failing that otherwise would have done. With support measures at an end, insolvencies are expected to return to pre-pandemic levels, and beyond. So, what action should be taken if your company is facing financial difficulty?
What happens if my company cannot pay its debts?
A company director must always act in the best interests of the company. In insolvency, the interests of company creditors will be paramount, and a director must take steps to ensure assets are preserved, and the position to company creditors does not worsen.
If you fail to take the appropriate action, your company is likely to face enforcement action, and could ultimately be forced into liquidation. Even if you believe that the problems are only temporary, you should make sure that you understand the options available and be satisfied that the decisions you make are the correct ones.
What is Creditors’ Voluntary Liquidation?
Creditors Voluntary Liquidation (CVL) is usually an appropriate solution when a business has no viable future and must cease trading. The procedure can be instigated by the directors of an insolvent company, if the shareholders’ also agree that the business should cease trading.
Once it is resolved that the company should enter CVL, a Liquidator will be appointed by the shareholders and creditors, and company assets will be sold to repay its debts. The Liquidator must be a Licensed Insolvency Practitioner who will facilitate the formal wind down and will also prepare and file all of the necessary documentation, ensure that the winding up is fully compliant with the current legislation.
Benefits of a Creditors Voluntary Liquidation (CVL)
✓ Allows employees to claim redundancy pay and unpaid wages from the Government
✓ Prevents creditors from taking action
✓ Provides directors with comfort in dealing with their choice of liquidator
✓ Reduced costs, compared to the likely costs of other insolvency processes
As always, careful consideration must be given to all options available.
Help from a Licenced Insolvency Practitioner
Keywood Group is a firm of Licenced Insolvency Practitioners with offices in Birmingham and London, although we cover all of England and Wales. Our team has extensive experience dealing with businesses and our Insolvency Practitioner is fully licenced and regulated by The Insolvency Practitioners Association (IPA).
If you are concerned about the viability of your company, please contact us for a no obligation assessment. We provide clear, transparent advice and work closely with all stakeholders to reach the best possible outcome.