Insolvency is an experience that a company director rarely goes through. If you do, you should ensure that everything is done correctly during the liquidation process and beyond.
If you care about your future business reputation, then liquidating your insolvent company through a Creditors’ Voluntary Liquidation (CVL) will be the best option for you. Not only will this avoid letting your company go into Compulsory Liquidation, it means you are fully acknowledging your legal duties as a company director.
In order to minimise any personal risk during a Creditors’ Voluntary Liquidation, the best thing you can do is identify the potential risk areas.
What are common risk areas?
One of the main things to focus on is steering clear of unlicensed advisors, who may not tell you all the things that need to be addressed prior to liquidating your company. These advisors won’t be your liquidators and therefore can give you incorrect information. So, it is always best to seek advice from an experienced, licenced insolvency practitioner.
There are a few common areas that may pose some personal risk when going through a CVL.
- Re-using the company name – There can be certain restrictions when going through liquidation. It’s best to get professional advice in order to avoid potential penalties.
- Directors conduct report – There will be a report on the conduct of all directors. This will include a questionnaire filled out by you, a copy of the pack prepared for the creditors’ meeting, along with any unresolved issues raised by creditors or the liquidator’s investigation into the liquidation.
- Leases and personal guarantees – Personal liability may exist if a lease is in the name of an individual or an individual has guaranteed a lease on behalf of the company. You’ll likely be able to negotiate this with the landlord. Also, check whether a personal guarantee is in place, as the responsibility for paying the guaranteed debt may pass to you in the event of a liquidation.
- Director’s loan account – If a director owes money to the company, then it’s important that the company’s accounting records are brought up to date. As this will help make sure all the usual annual entries into the Director’s Loan Account are made.
- Preference payments – You may have made payments to parties in the time leading up to the liquidation. However, you must ensure that no ‘preference payments’ were made. If there were, they can cause serious problems for the company directors and the people who received the preference payments – as the liquidator of the company will need to ensure they are re-paid.
Again, the best thing you can do is speak to an experienced licensed insolvency practitioner to get the right advice for you and your situation.
Clarke Bell are licenced insolvency practitioners, with more than 28 years of experience helping company directors through the liquidation process.
You can have free and confidential advice from our team of experts.
Call us on 0161 907 4044.