Responsibilities of a company director during a CVL
When a business is struggling to maintain essential payments and fulfil financial commitments, this may be a cause for concern as if your company is insolvent, it must cease trading before further worsening the position of creditors. If your business is experiencing a minor hiccup, you may be able to rectify your position by seeking a cash injection or restructuring solution. If the situation has adversely digressed, eliminating any chance of recovery, your responsibility as the company director will be to settle outstanding creditor affairs to the best of your ability before closing your company. Failure to do so could have serious repercussions, exposing you to personal liability.
Embarking on a Creditors’ Voluntary Liquidation (CVL) consists of transferring control of your business to the appointed licensed insolvency practitioner, acting as liquidator. The liquidator will set out to realise company assets to generate funds which will then be used to settle debts. The company will then be dissolved and removed from the Companies House register. This route differs from a compulsory liquidation as you are opting to voluntarily close your company as you no longer have the funds to stay afloat. As the company director, you will be responsible for shaping the future of your company, here are some responsibilities you will need to fulfil during the CVL process:
Director initiated process
A Creditors’ Voluntary Liquidation can only be entered into based on your decision, as this right lies with you as the company director. In some cases, the decision to close your business will be inevitable as it is your legal responsibility to protect the interests of creditors and prevent their position from further deteriorating. Rather than waiting for creditors to strike against you by issuing a Winding Up Petition, which if successful, could lead to the compulsory closure of your company – use your initiative and voluntarily seek closure.
After taking this step and confirming your decision to shut shop, you will need to enlist the services of a licensed insolvency practitioner who will be responsible for overseeing the affairs of your company.
Director Redundancy Entitlement
It is a common misconception that company directors exiting as a result of company administration or liquidation are not entitled to redundancy pay. Administered by the Redundancy Payments Service (RPS) and funded from the National Insurance Fund, you may be eligible to claim statutory payments, such as notice pay, unpaid wages and redundancy pay for company directors. It is your responsibly as the company director to ensure that you claim what you are due, speak to your appointed insolvency practitioner to be directed to a reputable and registered claims management firm specialising in director redundancy.
Director investigation
During the liquidation process, the liquidator will be required to launch an investigation into director conduct to ensure that you fulfilled your responsibilities in line with HMRC guidelines and acted in the best interests of creditors. As the company director, if you continued trading while knowingly insolvent or acted fraudulently, you could be held personally liable for the debts of your company, resulting in director disqualification. If you acted properly and protected the interests of creditors, the liquidation process will continue as planned.
Due to the voluntary nature of a Creditors’ Voluntary Liquidation, company directors are likely to be cooperative as they are in favour of the closure of the business. If your business is being pushed into compulsory liquidation, your duty to cooperate with the liquidator remains.