At the EGM, the shareholders decide to put the company into liquidation and vote for the insolvency practitioner that they wish to be appointed.

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1 For a Director My Company is Insolvent What Should I Do? There are a number of options available; Creditors Voluntary Liquidation (CVL) Compulsory Liquidation (Winding Up) Informal wind down or dissolution (Strike off) Administration - See separate guide Company Voluntary Arrangement (CVA) See separate guide Creditors Voluntary Liquidation (CVL) What is CVL? The most common type of company insolvency procedure is a Creditors Voluntary Liquidation (CVL). As liquidator, we will maximise realisations of all the company's assets to ensure the best possible return to creditors. It may be the end of the road for the company, but that does not necessarily mean it is the end of the business of the company, see our success stories in the Case Studies section. How does Creditors Voluntary Liquidation work? In a CVL, the directors remain in control of the timing of events. A board meeting is held to resolve that the company cannot continue to trade due to its liabilities. The directors also resolve to call a meeting of shareholders (EGM) and creditors (S98 meeting). During this period, the business ceases to trade and the insolvency practitioner assists the directors in drawing up a final balance sheet (called a statement of affairs) which they will approve. There are severe restrictions on the actions that directors should take to safeguard themselves from any potential personal liability during this period (details on these restrictions can be found on page 3). At the EGM, the shareholders decide to put the company into liquidation and vote for the insolvency practitioner that they wish to be appointed. At the S98 meeting (usually held immediately after the EGM) the creditors vote for the insolvency practitioner that they wish to be appointed and their choice presides over that of the shareholders, if different. Once appointed, the liquidator will collect in the assets, agree creditors' claims and, where there are sufficient funds, pay a dividend to creditors. At this point the directors are relieved of their duties except for their obligations to comply with the liquidator s requests for information etc. The liquidator must also investigate the events leading up to the company s insolvency and lodge a report on the directors conduct to DBIS (Department for Business, Innovation & Skills).

2 Compulsory Liquidation (Winding Up Order) What is Compulsory Liquidation? This type of liquidation begins with the making of a winding up order through the Courts, usually following a petition (request) by a creditor who is owed money by the company. Either the official receiver or an insolvency practitioner will be appointed as liquidator to deal with the process and the business ceases to trade immediately. The liquidator will collect in the assets, agree creditors' claims and, where there are sufficient funds, pay a dividend to creditors. How does Compulsory Liquidation work? Directors will have no control over the timing of this procedure and it is rare for any part of a business to be rescued once it has entered compulsory liquidation. Directors are therefore urged to contact us as soon as they are aware that a petition has been presented to discuss whether a voluntary liquidation (CVL) would offer a better solution for rescuing all, or part of the business. Informal wind down or dissolution Whilst an informal wind down or dissolution may seem like a cheaper and easier option, it should not be considered where you are aware that there are outstanding debts or claims against the company for two reasons; 1. All creditors, directors, shareholders and other interested parties must be notified of the application to strike off and have an opportunity to object to it if they have grounds to do so e.g. they are still owed money or have an outstanding claim. 2. A company can be restored to the register any time up to six years following a strike off on application from a creditor, shareholder or other interested party. The company is then deemed to have continued in existence as if it had not been struck off or dissolved, and any late filing penalties for that period will be applied. 3. As a director, you may be found personally liable for part of the company s debts if you are deemed to have been wrongfully or fraudulently trading.

3 As a director, what should I do once the decision to place my company into liquidation has been taken? First and foremost, you should take professional advice as soon as you are aware that your company has run into any financial difficulties. Early action means that more options will be open to you. As soon as you are aware that your company is struggling to pay its debts you should take great care when entering any transactions, as certain matters could result in disqualification and/or a fine. You could also be personally liable for some of the company s debts unless you are seen to have taken every step with a view to minimising the potential loss to the company s creditors as you ought to have taken. The board remains responsible for the conduct of the affairs of the company until a liquidator is appointed and is under a duty to preserve the company s assets and minimise its liabilities for the benefit of creditors and members generally. A list of do s and do not s is set out below as general guidance, but this is not exhaustive. If in any doubt, please contact us for specific advice. You SHOULD; Authorise the proposed liquidator to instruct agents to value the assets of the company. Their reasonable expenses will be an expense of convening the section 98 meeting. Ensure that all assets are properly insured and all liability insurances e.g. for employees, products, property owners and public are maintained. Deliver up all the books and records of the company for the previous 3 years prior to the s98 meeting. These are required to enable sufficient information to be provided to creditors regarding the financial affairs of the company. Prepare, with our assistance where necessary, a statement of the company s affairs in the prescribed form, together with a report for presentation at the meeting of creditors. Ensure that none of the directors or any member of staff speaks to the press or media. If appropriate, a formal press release will be prepared and this will be made available for distribution. Provide details of any known health and safety breaches in the last 3 years and deliver up the company s accident book and any inspection or safety certificates held in respect of the company s plant and machinery. You should NOT; Take any action that would result in any creditor or member (or group of creditors or members) being preferred or given an advantage over the others. Make any payments to existing creditors of the company, or obtain any further goods or services on credit. Use credit and charge cards issued to directors or staff.

4 Accept deliveries of goods or services already ordered without the proposed liquidator s written consent. Dispose of any assets (except to the extent necessary to meet essential costs and expenses of the company) or allow any of the company s creditors to remove any goods. Supply any goods to existing creditors except on a pro forma payment basis. Despatch any goods with carriers or hauliers who are owed money by the company. Pay any funds into the company s bank account if it is overdrawn (especially if you have given them a personal guarantee). Cash or cheques received by the company should be handed over to the proposed liquidator for payment into a clients account.

5 For a Creditor The Company has gone into Liquidation and I am owed money. What are my Options? Liquidation As a creditor you have the right to decide who you wish to be appointed as Liquidator to deal with the administration of the liquidation and get the best possible return for you. We have extensive experience in dealing with these processes and are adept at achieving the best possible results. In addition, we will investigate the circumstances leading up to the insolvency and root out any transactions that may be challenged. This often leads to enhanced recoveries, which means increased dividends to creditors. How do I ensure my choice of Liquidator is appointed? The process is a simple one; you or your client will receive notice of the initial meeting of creditors along with a proof of debt and proxy form from the Official Receiver (OR) or convening Insolvency Practitioner (IP). You will be entitled to a vote for the value of your debt, so if the total debts are 100k and your debt is 10k then your vote will count as 10% of the total. A clear majority of votes is required to appoint an IP so the larger your debt is in comparison to the total value then the more sway your vote will hold. You should complete both forms (we can provide assistance, should you require it) and return them to the OR or convening IP before the deadline stated (usually before 12 noon the day before the meeting is to be held). The proxy form allows you to nominate your choice of IP.