What is the cost of a Creditors Voluntary Liquidation (CVL)?
The costs of a CVL are split into two stages; the costs of assisting the directors in placing the company into CVL (the pre-appointment stage), and the costs for the appointed liquidator to administer the CVL process (the post-appointment stage).
The costs for the pre-appointment stage of a CVL will usually be on a fixed fee basis and agreed with the directors in advance of instructing the insolvency practitioner.
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The cost of the post-appointment stage of a CVL is regulated by the Insolvency (England and Wales) Rules 2016. The rules say that the cost of a CVL must be fixed and its basis may:
- be a percentage of the value of realised assets, distributed or both or
- relate to the time spent by the liquidator and their staff in attending to matters arising in the CVL or
- be a set amount
Further, any one or a combination of the above bases could be used to fix the fee and, certain aspects of a case may even have a differing basis or percentage.
Typically, the cost of a CVL will relate to the complexity of the case (for instance the nature and number of creditors owed, debts to be chased or assets to be realised) and the amount of time needed to resolve the various aspects of the CVL.
The CVL cost may also be influenced by any exceptional responsibilities for the liquidator, as seen in the health and care sector, farming and other areas.
When a company goes into a CVL, the cost (of both stages) is usually paid out of its assets once realised by the liquidator. In such instances, creditors will be asked to vote in respect of the liquidator’s proposed costs in dealing with the CVL.
Funding a CVL
As mentioned, it is usual for the cost of a CVL to be paid out of the assets once realised however, it may be possible to fund a CVL in other ways should there be minimal or no assets in the company, or directors wish to maximise the assets available for the distribution of creditors:
Personal funding
It is possible to pay the CVL cost from personal funds. This usually only applies to the fixed costs of the pre-appointment stage and can either be by way of a direct payment to the insolvency practice, or via a loan or third party contribution to the CVL to increase the value of assets available to meet the costs of the CVL.
Director redundancy
As with employees, there are statutory laws in place in terms of redundancy, holiday pay, notice pay and unpaid wages that are applicable to directors should they meet certain criteria:
- 2 years in employment, with a minimum of 16 hours per week (for redundancy only).
- The company owes you money.
- You are both a director and an employee; working there you are in receipt of a monthly salary for time and work completed.
Greenfield Recovery Ltd can advise further, explaining the criteria and providing you with appropriate claim forms. Successful claims are paid by the Redundancy Payments Service from the National Insurance Fund (subject to various limitations) and could result in a significant payment to directors within 3-8 weeks of the company entering CVL. In certain circumstances a liquidator may agree for a director’s contribution towards the costs of the CVL to be paid upon receipt of payment from the National Insurance Fund.
What happens if the costs of a CVL cannot be funded?
If CVL costs cannot be found and dissolution (designed for solvent companies) isn’t possible, then the company must wait for a winding up petition to be submitted to the courts; resulting in a compulsory liquidation. A conclusion to the situation, but not an ideal one (see Reasons for a Creditors' Voluntary Liquidation).
If you are insolvent and would like to discuss the costs of a CVL and how you might fund a CVL call us today 0121 201 1720 or send your enquiry for free, no obligation advice about your situation. In such circumstances it is of great importance to know that you must stop trading to avoid accusations of wrongful trading.
