A North West-based Estate Agent had been trading successfully for a number of years, with turnover growing steadily year-on year, until the Credit Crunch arrived.
Then things rapidly changed for the worse. The failure of Northern Rock had an immense effect on property sales throughout the country. Banks became reluctant to lend and customers were reluctant to borrow. Customers soon began to pull out of property sales and take their property off the market. At the same time, it was very difficult to find buyers for the properties that were still up for sale.
Sales figures began to decline rapidly, and the cashflow of the company began to weaken significantly. The director knew that immediate action was required. So, to assist the general cashflow, he injected a substantial amount of additional funds into the company. However, with the property market on the verge of crashing, creditors were increasing substantially while turnover was decreasing significantly.
The director knew that the company could not continue to trade in its present condition, and he was no longer able to inject any further funds. Consequently, he approached Clarke Bell for advice. It was agreed that the company would enter into a CVL (Creditors’ Voluntary Liquidation).
The advantage of a CVL from the director’s point of view was that he was able to bring to an end a period of great worry and uncertainty, and avoid any potential risks associated with trading while insolvent.
From the creditors’ perspective, their positions were crystallised and not made any worse. As it is the creditors who actually appoint Clarke Bell as the Liquidator, they could feel sure that the issues of the company were dealt with correctly.
John Bell, Clarke Bell’s senior partner, said:
“The speed of change from good times to bad times has been so quick that a lot of businesses are finding themselves in this type of situation.
By entering into a CVL, the company director puts himself in a position whereby he is able to start up afresh and to benefit from his past experiences.”