The Five Easy Steps to take to Close your Business

As the Insolvency Service announces that creditor voluntary liquidations (CVLs) have risen greatly in the past couple of months with a huge 87% of all company insolvencies recorded being CVLs.

Q1 which includes the months of January to March inclusively showed a total of 4,274 corporate insolvencies, which was the highest quarterly figure recorded in over a decade.

So a key question to examine is why so many directors and business owners have chosen to close their businesses in the first three months of 2022?

Chris Horner, Insolvency director with BusinessRescueExpert, said: “There’s several reasons why creditor voluntary liquidations (CVLs) are growing right now.

“It’s an insolvency procedure that gives directors a big element of control themselves. They have to work with an insolvency practitioner to legally oversee the process but they can select one they are happy to work with and are comfortable with being involved in their business rather than having one imposed on them which is what courts or creditors can do.

“A CVL will crystallise debts owed by the business including arrears such as bounce back loans. This means that in the majority of cases the business can close and the debts will be written off when it is removed from the companies house register.

“Additionally, if a director gets paid a part of their salary or all of it through PAYE like other employees then they would be eligible to receive redundancy payments which could help them at a difficult time.”

How to close down your business in five stages?

A CVL has five distinct phases that have to be followed through in order to be legally completed and each one has a different flavour.

1. Initial Meeting

The first step in a CVL is an informal meeting that is usually completed free of charge between the chosen insolvency practitioner and the directors.

It can take place online at any time or place the directors choose. The financial situation of the business is discussed and outlined and the practitioner will get a clearer understanding of the issues facing the business.

They will then be able to summarise what options are available to the directors and what they can do next.

2. Review

Based on the information provided by the directors, a formal review is agreed with the insolvency practitioner including agreeing a fee for the work to be completed.

This usually happens within a fortnight of the first meeting and is also free but any further professional advice from this stage will be chargeable along with any other work incurred.

Options discussed at this meeting include whether a liquidation is the best option after all or whether others such as an administration or company voluntary arrangement (CVA) might be better placed to achieve the directors aims.

They can also discuss more specific details including how to deal with company assets and what will become of any outstanding leases, contracts, hire purchase agreements or directors loans and any personal guarantees.

3. Formal instruction

This is where the directors agree to proceed with the process as agreed in the terms and conditions set out. They then formally instruct the insolvency practitioner to begin the liquidation acting on their behalf and agency.

4. Convening the shareholders and creditors meetings

The next step is to arrange two separate meetings with the shareholders of the company and its creditors. Usually taking between 9 and 21 days after the practitioner has been formally instructed.

They can be held virtually, usually on the same day, but one director has to attend both. They are to answer any questions shareholders or creditors may have about the process and will outline how the liquidation will proceed.

Once concluded, the business can legally and formally be placed into liquidation.

5. Closure

The final phase sees the formal closure of the disrupting business and tying up any loose ends or outstanding issues that might remain. They will usually take between nine and 12 months to fully resolve depending on how complicated the issues might be.

During this phase all of the company’s paperwork, records and financial records are sent to the liquidators office and any remaining company assets are realised and proceeds released.

All of the company’s directors will then complete a questionnaire to make sure there are no further outstanding issues and if this is the case the liquidation is declared closed. Three months after this date, the business is declared formally dissolved and is removed from the companies house register.