If your business is insolvent, you should cease trading immediately and seek advice from a licensed insolvency practitioner. They will advise you on how to close the business while acting in the best interests of your creditors.
Creditors’ Voluntary Liquidation (CVL)
A Creditors’ Voluntary Liquidation is the most common way to close an insolvent company. You initiate the process by contacting a licensed insolvency practitioner. They will act as the liquidator and manage the whole process. They’ll invite claims from your creditors and value and sell the business’s assets to repay the creditors as much as possible. They’ll then formally dissolve the company and any remaining debts will be written off.
A CVL can help to protect you from accusations of misconduct and wrongful trading, as you’re seen to be doing the right thing by acting to protect the interests of your creditors. You may also be eligible to claim director redundancy pay.
Compulsory Liquidation is a process that’s forced on you by a disgruntled creditor, commonly HMRC. A creditor can issue you with a County Court Judgment (CCJ) or Statutory Demand to collect a debt. If you do not settle the debt or have it dismissed in court, they can then issue you with a Winding Up Petition and an order can be made by the court to close your company.
The court will appoint a liquidator who will investigate your conduct in the period leading up to the insolvency. If they uncover any issues, you could face adverse consequences, such as fines, liability for company debts and even disqualification from acting as a director.