If the company that you are a director of is finding it difficult to trade, or needs to cease trading, you may well be unsure what to do next and what the process is.
Generally, there are two tests to see if a company is insolvent. The first test that should be looked at is, can the company pay its debts as an when they fall due? The second test is whether its liabilities exceeds its assets, making it insolvent.
If a company falls into either or both of the above, it may need to go into Voluntary Liquidation. So, what happens next?
Usually, the directors will want to take some advice from a third party to answer their questions and concerns.
The third party could be one of the following:
- An online assistance business, such as Company Insolvency Advice.
- Their own accountant.
- A specialist insolvency accountant.
- A solicitor.
- An independent business advisor.
If it is agreed that Voluntary Liquidation is a solution, then the Board of Directors needs to instruct a licensed Insolvency Practitioner to assist with the process.
A good Insolvency Practitioner will explain what happens next, in detail.
Company directors are often left feeling unsure or slightly bewildered by the process, so it is important that time and care is taken to understand what happens next.
In the formal part of the process, the directors have to agree the company cannot continue and intends to enter into liquidation.
On a practical basis, the licensed Insolvency Practitioner will need the assistance of the directors and key members of staff, to obtain all the information that is needed to be able to prepare a report on the company’s position that is sent to all creditors.
This will include the following detail:
- Creditors details to include names, addresses and amounts due.
- Details of all the company’s assets, including debtors, stock, work-in-progress and any other physical assets.
- A full set of the company’s last accounts.
- Names and account numbers of bank accounts, to include levels of overdraft, if there is one.
- Details of HMRC accounts for PAYE and NI, VAT, Corporation Tax and CIS Tax. This will also include all relevant unique tax reference numbers and access to online accounts.
- Names and addresses of all employees, together with lengths of service, last pay date and information about any company pension scheme.
- A list of any items that maybe on lease or hire purchase, together with the names and addresses of the lender.
In addition, the instructed Insolvency Practitioner will obtain all company statutory information and from this, and the above, will prepare a report for all creditors to see at the Meeting of Creditors.
Whilst this is going on, it is usual that the company has ceased to trade and all employees will have been made redundant. The licensed Insolvency Practitioner will assist the employees in making claims for any wages in lieu of notice, outstanding wages, unpaid holiday pay and redundancy.
The directors of the company are still in office until the Liquidator has been appointed and must not do anything that devalues the company’s assets, or worsens the position of the creditors. They must especially not order goods they know will not be paid for.
On a practical level, the Insolvency Practitioner will suggest all creditor enquiries are diverted to him, or her, and not to the directors.
Once all the information has been collected and a report prepared on the company’s situation, a meeting of the company’s shareholders will be convened to agree the appointment of a Liquidator, by the shareholders. This is the first stage in appointing a Liquidator.
It is usual that this happens just prior to the Meeting of Creditors and this is the meeting that the company’s creditors ratify the appointment of the Liquidator.
Creditors Meetings are more often held as virtual meetings, but if a certain level of creditors request it, a physical meeting must be held (it is fair to say that this is rare).
When the Liquidator has been appointed, the directors no longer hold office and all the company’s affairs are dealt with by the Liquidator.
Throughout the process, the directors will liaise with the licensed Insolvency Practitioner and are able to obtain explanations of how the process works and what is involved.