Options Now That Your Company Has a County Court Judgement

If the worst happens and a County Court Judgement is issued against your company, it may seem like nothing can be done.

However, like the proverbial silver lining, there are a few options available to you which we have outlined below.

Go into a Company Voluntary Arrangement (CVA)

A CVA is an option for insolvent or contingently insolvent companies (which cannot afford to pay its debts on time and in full).

It is a legal process that enables your company to make a binding agreement with its creditors and lenders describing how the company’s debts and credit liabilities will be handled.

This will involve either partial or full repayment of debts depending on how much the company can afford.

In excess of 75% of the creditors must agree to the terms, and if approved, the CVA binds all creditors irrespective of how they voted, allowing the directors to retain control of their company.

Often the terms will be agreed to immediately if the creditors understand that the alternative is liquidation, providing little to no return for themselves. A CVA therefore aims to serve in the interests of the creditor while allowing the company to continue trading.

Find out more about our Company Voluntary Arrangement service.

Key benefits:

• The Company continues to trade under the control of the Company Directors
• Historic debts are frozen; no interest or costs will accrue, and creditors have no enforcement action available
• Repayment structure of the CVA is flexible, pay what you can afford
• No liquidation or administration needed
• No pre-pack, so no need to buy all assets
• Existing funding can generally be left in place
• Protection from the Court will be obtained while the CVA proposal is considered by the creditors
• No report on the conduct of the Director required

Put your company into voluntary liquidation: MVL or CVL

Member’s Voluntary Liquidation (MVL)

This is appropriate in the case of a solvent company (that can afford to pay its debts).

An MVL is a tax efficient way of closing your company when it has come to the end of its useful life, for example if the owner is retiring and wants to release cash from the business into their personal estate.

With the new provisions to entrepreneur’s relief, in most cases it is cheaper to take money out of the company via an MVL than as a special dividend due to the lowered tax rate of 10%.

Please note, an MVL is NOT appropriate if the company is insolvent. If this is the case and you swear the declaration of solvency, you are committing a criminal offence.

A licensed Insolvency Practitioner must be appointed to use this process – they will file all appointment documents, complete post-liquidation VAT returns and de-register the firm at Companies House for you.

After 1 month has passed, the liquidator will then distribute any funds to the shareholders and prepare final reports.

Although the voluntary winding up petition has to be advertised in the Gazette, making it a matter of public record, an MVL is not considered an insolvency procedure and therefore it should not negatively affect your business reputation or your credit score in any way.

Creditors’ Voluntary Liquidation (CVL)

If your company is insolvent, then this is one of the ways to close it.

In this case, the director themselves begin the process of liquidation, and shareholders will attend a general meeting to vote for their preference, passing a resolution for voluntary winding up.

Once the course of action has been agreed then a liquidator will be appointed to deal with the CVL.

A meeting of creditors must be held to receive the details of the company’s financial affairs.

If the creditor’s nomination for a liquidator differs from the shareholder’s preference, their nomination will usually overrule.

The job of the liquidator is to:

• Realise the company assets
• Agree the creditors’ claims
• Investigate the affairs of the company and the director’s conduct

We would advise that a CVL is appropriate in cases where the company no longer appears to be viable, even through restructuring or restarting.

Close your company through administrative dissolution

If you have a lack of funds available to you to pay liquidators fees, then consider this more affordable and less intrusive alternative to liquidation. This process is based on the benefits of using Sections 1003-1008 of the Companies Act 2006 which are available to your limited company.

This process is often called a ‘cheap liquidation’, but under The Insolvency Act 1986, an Administrative Dissolution isn’t classified as a formal liquidation.

The cost of Administrative Dissolution starts from around £250, depending on the complexity of the case.

Key benefits:

• Immediate steps can be taken to start closing your company
• No formal meeting of creditors
• It’s cheaper by far than liquidation
• Not as intrusive as more formal liquidation procedures
• You retain final control of the process
• It’s possible to clear thousands of pounds of bad business debt

Restart your company with a ‘pre-pack’

A pre-packaged, or company restart, route may be taken, in which the company is able to continue to trade with minimum interruption despite any problems their firm has.

In this case, the company director(s) set up a new (often called a ‘phoenix’) business and buy the valuable (or useful) assets from the original company in order to continue trading while the original company enters administration.

Afterwards, all other assets are sold, and priority creditors are paid.

Whilst the appointed administrator sells the business and its assets to the owners of the new business, the company is protected by the courts.

This means the debts and unwanted contracts are sorted out, while saving the jobs of the existing employees at your company.

This process is also one of the cheaper options, as most of the administration is to do with selling the company. Once the initial marketing, valuation and negotiations are completed, the process will usually be completed in a matter of days.

Keep in mind that it is a requirement by law to get all assets independently valued and a fair price should be paid, so the new company will need to have the funds available to purchase all valuable assets.

This option is most appropriate where the business is still viable, particularly if you want to save the jobs of those you employ, as the process is conducted under strict guidelines and is therefore only entered if it is in the best interests of the creditors.

Not sure what to do?

If your company is struggling with unmanageable HMRC debts, poor cash flow, or an uncertain future, you are not alone.

We speak to company directors struggling with the same issues as you every single day, and we are here to give you the help and guidance you need.

Call our team for free, no-obligation advice today on 0800 975 0380 or book a free consultation