What Can Be Done as a Director of a Struggling SME?

May 27, 2022 / Business Insolvency

Recent years have not been kind to small businesses. The Covid-19 pandemic has had a significant impact not only on Britain’s economy, but on the global economy at large. Coupled with this, other economic and political factors have had their effect. The economic uncertainty caused by Brexit has pulled the rug from underneath many companies, while the recent National Insurance rise has impacted the profitability of companies nationwide. Due to these factors and more, many companies have decided to enter insolvency proceedings.

For many of these companies, a Creditors’ Voluntary Liquidation (CVL) has been viewed as the most suitable method to close. The process allows insolvent companies a means to regain some control over their finances, putting a stop to the downward spiral so many companies across the nation are in. If your company is in a similar position, a CVL is likely the best option available to address your company’s debt, and ensure your obligations as a director are fulfilled.

What is a CVL?

A Creditors’ Voluntary Liquidation is an effective method of closing an insolvent company. It is initiated voluntarily, usually by directors that have identified a severe problem in their companies’ finances that may not be remedied. Rather than allow the situation to get out of hand, a director may opt for a CVL to handle their company’s debts and liabilities while they are still manageable. As part of the process, directors can appoint their preferred insolvency practitioner to carry out the CVL. They will ensure the company is closed properly, following the letter of the law, and offer professional advice that might otherwise escape the average director.

Though the idea of a CVL might be off-putting to some directors, it is a preferable alternative to compulsory liquidation, something all directors should avoid at all costs. Compulsory liquidations are initiated by a third party, usually a creditor, and have serious consequences. The fates of companies forced into compulsory liquidation will be taken out of directors’ hands, as an insolvency practitioner will be responsible for ensuring creditors’ needs are met. Moreover, there is a good chance that an investigation into company directors will be opened, to find out how company finances became so dire. If wrongful trading is found, it can have far-reaching consequences. As such, a CVL is a much more effective and much less stressful method of liquidation, offering a company many unique benefits.

Why use a CVL?

If you are a director of a struggling SME, you should strongly consider taking advantage of the benefits offered by a CVL. These are:

  • A CVL allows directors to regain some control of their company’s finances. It can be used to stop a company from spiralling further into debt, and avoid a compulsory liquidation entirely.
  • The CVL process is voluntary and demonstrates a director’s intention to act in the best interests of company creditors. This allows directors to wind up their current business, while still being able to open a new business in the future. This is not the case for companies that undergo compulsory liquidation, which can result in directors being barred from future management positions.
  • A CVL allows company directors to appoint their preferred insolvency practitioner, rather than have one selected by a third party.

Is a CVL appropriate for you?

Your first course of action should be to consult a licensed insolvency practitioner. They will be able to give you professional advice and determine whether a CVL is right for your company. If not, they will be able to apprise you of a better path forward.

If a CVL is best for your company, your appointed insolvency practitioner can help you begin the process. They will begin by collecting all the necessary information, liaising with either you or your accountant. With a precise list detailing your company’s assets, accounts, and creditors, your company can begin its liquidation. At this point, you will need to stop trading completely.

The process will be carried out by your appointed insolvency practitioner. Taking much of the stress of liquidating a company off your shoulders. Their job is to ensure your company is liquidated properly. To help you uphold your obligations to creditors, assist with holding necessary meetings, and help with the required administration work. For more details, read our guide on the CVL process.

Regardless of whether you choose to utilise a CVL or try another route. It is crucial you act swiftly and sensibly. As a director, you don’t have the luxury of inaction when your company is in financial distress. You have legal responsibilities and obligations to select parties. So, you must act in the company’s best interests and relevant parties. Failure to do so can and often does result in heavy consequences for directors that abandon their responsibilities. As most insolvency practitioners offer a free consultation, you have nothing to lose by seeking advice. You might find the solution by doing so.

Let Clarke Bell help

If your company has struggled as a result of the current economic instability, you might find that a Creditors’ Voluntary Liquidation is the best solution. Clarke Bell can help guide you through it. We have an experienced team of insolvency experts, having helped companies find the best path forward for over 28 years. We would be happy to do the same for you. To find out how we can help you, contact us today for a free consultation.