Business Debts

What is a Company Voluntary Arrangement?

Company Voluntary Arrangements (CVA’s) are used in cases where the company is currently in trouble, but appears to be viable and could well become profitable again; In layman’s terms, all the company debt is moved into one manageable monthly payment, so that the company can continue trading without the burden of winding-up petitions or liquidations being threatened. This allows you to move forward without the pressure.

Benefits of a CVA

▪️Pressure from creditors and HMRC is relieved

▪️Legal action cannot be taken by creditors

▪️All payments to creditors will be centralised into a single monthly payment

▪️Company directors and shareholders do not lose control of the business.

▪️The CVA is not public information: advertisement in the London Gazette is not required

▪️Once your Company Voluntary Arrangement is in place your creditors can no longer add further interest or charges to any of your accounts covered by the agreement

▪️Can stop a winding up petition from becoming successful

▪️Cash flow is inevitably improved with reduced payments

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Eligibility criteria for a CVA

▪️Do you have a  business?

▪️Do you have business cash flow issues?

▪️Do you have debts of £4,000 or more?

▪️Are you able to make some form of monthly contribution to your debts?

▪️Is the stress and worry of debt becoming too much to handle? Do you need free and impartial advice from an industry expert?

What is Members Voluntary Liquidation?

Members Voluntary Liquidation (MVL) or Solvent Liquidation is a process that is generally a tax-efficient way of shareholders extracting funds from a company that has ceased to trade. At ICS our typical MVL instructions come from our network of accountant introducers, whose clients have either sold their company’s business and the limited company is cash-rich, or company’s which have run their course and the shareholders want to realise their investment in the most tax-efficient way possible, liquidating the business assets.

What is a solvent company?

A company can be regarded as a solvent when it is able to pay all liabilities in full, as well as statutory interest and any costs involved with the winding-up procedure, within 12 months from the Declaration of Solvency.

Why would a company choose Solvent Liquidation?

Generally, MVL is a tax-efficient process for shareholders of a company to realise their investment i.e. the company’s assets, via a capital distribution. Subject to meeting certain criteria, the shareholders may qualify for Entrepreneurs Relief, therefore their returns are subject to tax at a much lower rate than usual. In most instances, the company will have ceased trading and all creditors/liabilities will have been settled, all or most physical assets will have been sold, with the company’s only asset, therefore, being made up of cash at bank. Should there be remaining assets to realise then they can be dealt with through the liquidation process, either by the liquidator taking steps to sell the asset or alternatively, by undertaking the Distribution in Specie procedure – which is essentially distributing the asset to the shareholders in lieu of its cash value.

The solvent liquidation process

▪️Ideally, the company will have ceased to trade and final accounts will have been prepared by the company’s accountant and signed off by the directors. Additionally, it is beneficial in most cases for all tax (and other) liabilities to have been settled, otherwise, interest at 8% per year begins to accrue from the date of liquidation.

▪️A formal Declaration of Solvency must be produced. This document will provide details on the company’s assets and liabilities, which will prove that the company is both solvent and has the ability to repay its creditors, with statutory interest, in a maximum of 12 months. The company’s directors must swear the documents in front of a solicitor, confirming they believe its content to be true.

▪️A board meeting is held at which the decision is made to recommend to the shareholders that the company be placed into a solvent liquidation, the directors will sign off all relevant notices required to commence the MVL procedure.

▪️A General Meeting of shareholders is held at which shareholders will resolve to place the company into a solvent liquidation, so long as 75% of shareholders are in favor, as well as other resolutions relating to the distribution of the company’s assets.

▪️It is the role of the appointed liquidator to settle any outstanding debts with creditors (if any) before distributing the company’s assets amongst the shareholders.

▪️The liquidator must obtain clearance from government departments to confirm that they have no objection to the liquidation being completed.

▪️Following the filing of the liquidator’s final report at Companies House, the company is removed from the register three months later and is dissolved.

What is Company Creditor Voluntary Liquidation?

Creditors Voluntary Liquidation (CVL) is the most common liquidation process for companies that are experiencing financial difficulty from which they cannot recover. If a company cannot pay its creditors (debts), doesn’t have enough funds to continue to operate, and is not able to benefit from a Turnaround & Rescue or administration procedure, the company can be placed into liquidation.

Once it is clear that there is no reasonable prospect of a company avoiding insolvent liquidation, company directors must take steps to ensure that the company is not trading whilst insolvent. In the event that a company continues to trade whilst insolvent, this is known as Wrongful Trading, which can result in personal liability for the directors.

The Creditors Voluntary Liquidation (CVL) process

▪️Initial advice meeting with an ICS licensed insolvency practitioner

▪️A board meeting is held where directors come to the conclusion that the company cannot continue trading and that the company should therefore be placed into CVL

▪️A Statement of Affairs is produced (this is a document which states the company’s assets and liabilities) and is signed off by the company’s directors

▪️The Statement of Affairs is supported by a narrative report which includes the company’s background and events leading to liquidation – these documents are circulated to shareholders and creditors

▪️A Shareholders’ meeting is convened to consider the resolution to place the company into liquidation, the resolution must be passed by 75% of shareholders voting in favour

▪️It is the responsibility of a company’s creditors to confirm the appointment of a liquidator, this is carried out via a statutory decision procedure, either a virtual creditors meeting or using the deemed consent procedure (creditors representing certain threshold criteria can request a physical creditors meeting)

▪️Once in liquidation, it is the liquidator’s responsibility to realize and distribute the company’s assets.

In practice, following the initial advice meeting, ICS will put together all the relevant paperwork and documentation to place the company into liquidation. This includes producing the board meeting minutes and notices, preparing the Statement of Affairs and supporting report, liaising with shareholders and creditors, and dealing with the formalities of the shareholders meeting and creditor decision procedure (and creditors meeting if applicable).

Frequently Asked Questions

Debts included in business debt solutions

Most unsecured debts can be included. Secured debts, like mortgages, cannot be included. Other debts which are excluded include:

▪️Court-ordered payments, such as fines, compensation, penalties or forfeiture orders
▪️Family, aliment, or child support payments
▪️Student loans
▪️Any debt owed due to fraud, such as benefit fraud

Creditor expectations

Creditors will not agree to a plan that they do not think is fair. This means that if they think that an individual can pay more back than they have offered to under the terms of the plan, the creditor will refuse to agree to it. They may also refuse to agree if they believe that an individual should be made bankrupt.

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