Having an efficient out of court mechanism for the private sector to deal with the smaller and mid-tier limited companies is beneficial to all, as it allows those in financial distress to resolve matters without bureaucratic intervention.

1. Control of the process

Directors can choose when to enter a CVL negating the period of uncertainty and delay which follows when there is a pending petition to wind up a company through the court. 

Because the court imposes a strict legal framework, which includes advertising the petition, the directors have little room to manoeuvre and the ability to respond to a pending winding up petition is limited.

The Directors nominate their own liquidators, rather than having one imposed by the Secretary of State.

Creditors can nominate their choice of liquidator.

Continuity of the working relationship between the director and the Insolvency Practitioner (“IP”) in the period prior to and post CVL promotes efficiency.

The process is overseen, at all times, by a licensed insolvency practitioner.

2. More favourable outcome for creditors and employees

In a CVL, petitioning creditor costs are avoided which are refunded by the estate after the payment of the Official Receiver’s (“OR”) fees but in priority to dividends.

Because the whole process is managed in controlled manner assets can be sold strategically to maximise returns, offering a better outcome for creditors.

The Court fees and OR’s costs are a fixed fee on the estate, irrespective of the value of the assets of the company and, even if an independent IP is subsequently appointed in a CWU, the fixed fees are still charged and are not dependent on the level of work carried out.

It is extremely rare that a viable core business is salvaged from a compulsory liquidation, but a sale of the trade and business of the company is an option for a CVL liquidator.

3. Legal Obligations

Directors fulfil their legal obligation by addressing the insolvency issues promptly, potentially reducing the risk of wrongful trading accusations.

4. Reputation Management

Voluntarily entering liquidation can help manage the director’s reputation better than being forced into compulsory liquidation.  It is seen as a proactive approach and as such more favourable that ignoring the company’s financial difficulties.  It therefore can offer a smooth transition to a new business venture.

For further information on the CVL process, get in touch with our Restructuring and Insolvency team.