Sterling Ford - Insolvency & Bankruptcy Services


   Creditors' Voluntary Liquidation - CVL

Creditors Voluntary Liquidation Direct Cost Effective, Value for Money, Creditors' Voluntary Liquidation Services


In these extraordinary times with many industries significantly impacted by lockdowns and travel restrictions and notwithstanding the UK Government’s support through a range of job retention programmes, loans and grants, in the coming months as business owners may see the economy start to re-open in the wake of a successful rollout of the Covid-19 vaccination programme, many will face some difficult questions and decisions. Can they borrow anymore to finance trading out of their situation? Will their landlord tolerate any more arrears? How many years could it take their businesses to recover before they may see their own livelihoods restored?


For those who exhaust the prospects of a turnaround, subject to taking professional insolvency advice, a Creditors’ Voluntary Liquidation may be the most appropriate option, as it would not only protect the position of creditors as well as employees, but also the position of the directors. Early action could prevent trade and crown creditors suffering greater losses than necessary; the bank position deteriorating further and minimise the possibility of the directors facing any claims under personal guarantees or losing more of their own money, particularly if borrowed personally to inject in the business.


The CVL route is usually the last voluntary resort for a company, as it is insolvent, in that it is unable to pay its debts when they fall due and cannot continue trading.


Sterling Ford have often used the CVL procedure as part of a restructuring solution, to preserve business undertakings, maximise realisations and returns to creditors; in achieving full and final commercial settlements between associate entities, particularly in highly regulated industries such as financial services/markets.



What is the Creditors' Voluntary Liquidation procedure?

Subject to a Company’s directors being advised that a CVL is the most appropriate procedure for their insolvent company, the following steps would be taken:


Step 1

A Meeting of Directors would be held, which would resolve, inter alia, that the Company cease trading and a Meeting of Members be convened for the purpose of passing a special resolution to place the Company in liquidation and to nominate a licensed insolvency practitioner for the appointment as liquidator. The Directors would also convene a Decision Procedure for the purpose of confirming the appointment of the Company's nominee as liquidator, which could be, for example, by Virtual Meeting or by Deemed Consent. Notice of the Meeting of Members would be sent to members and Notice of the Deemed Consent procedure, if being used, would be sent to creditors, together with, inter alia, a copy of the statutory Statement of Affairs with a Statement of Insolvency Practice 6 (SIP6) Report.


Step 2

If using the Deemed Consent procedure less than 10% of creditors by value of their claims object to the Deemed Consent procedure/the proposed Nominee’s appointment as liquidator, then a Director must convene a physical Meeting of Creditors. At the physical Meeting of Creditors, either the Company’s Nominee would be confirmed as liquidator or another insolvency practitioner would be appointed instead.


Step 3

The liquidator would communicate with members and creditors to notify them of his appointment and to invite creditors to lodge their claims, advertise the Resolution to wind up the Company and his appointment and file such documents as well as the Statement of Affairs/SIP6 Report at Companies House. The liquidator would bond (insure) the assets comprised in the liquidation estate, based on the estimated realisable value of those assets reflected in the Statement of Affairs. The liquidator's duties include: investigating the conduct of the directors and cause of a company's failure; and cost effectively maximise realisations, agree creditors' claims and distribute



Communications used in Insolvency Procedures

Under the Insolvency (England and Wales) Rules 2016, communications with creditors and other stakeholders should be by whatever means of communication has been used by the Company, so if it is for example, by email, then all communications concerning the CVL procedure must be by email too. Accordingly, the directors of companies wishing to instruct Sterling Ford to assist them in placing their company in CVL, must first complete and return a CVL Questionnaire, in which they would provide full details of the Company's creditors including the means of communication used. Once Sterling Ford has received the completed CVL Questionnaire, Sterling Ford would be able to issue a formal CVL Quote, which would take into account not just the number of creditors, but whether they should receive communications from Sterling Ford by say, email or by post, with post always being the default means of communication if no other means is given.




Costs of Placing a Company into CVL


These comprise Pre-Appointment Fees and Disbursements and apply to each of Steps 1, 2 and 3 of the procedure for placing a company into CVL (as set out above), as follows:


Step 1

Pre-Appointment Fee - [subject to discount for 11 or more creditors see note (a) below] - all sums plus VAT where applicable

Base Fee £1,950 plus charge per creditor of £100

Disbursements [see note (b) below] - all sums plus VAT, where applicable

Fixed charge £48.00 plus Variable charge for electronic delivery to any number of creditors at £3.00 and/or a Variable charge for postal delivery at £3.60 per creditor


Step 2

In the [unlikely] event that at least 10% of creditors by value of claims object to the Deemed Consent procedure and a Physical Meeting must be convened and held and for amending the Statement of Affairs, if required

Pre-Appointment Fee – all sums plus VAT, where applicable

Fixed charge of £118.50 plus Variable charge for electronic delivery to any number of creditors at £3.00 and/or a Variable charge for postal delivery at £3.60 per creditor


Step 3

Post-Appointment Fee - the basis and quantum of any liquidation fees would be by agreement between the appointed liquidator and creditors and would be dependent on realisations being made in the liquidation estate

Disbursements [see note (b) below] – all sums plus VAT, where applicable

Fixed charge of £228.10 plus Variable charge for electronic delivery to any number of creditors at £3.00 and/or a Variable charge for postal delivery at £3.60 per creditor


Notes

(a) – Pre-Appointment Fees - Discounted rates apply for more than 10 creditors:

Number of creditors Charge per creditor £
11-20 90
21-50 80
51-100 70
101-200 60
>201 P.O.A

Charge for employee claims – at £50 per employee in addition to the charge shown per creditor.

All examples are for a company with no or nominal assets [asset value less than £10,000]


Example 1: a company with 2 creditors, no employees, communication with creditors: both by email

Step 1

£
Pre-Appointment Fee: Base 1,950.00
Creditors 200.00
2,150.00
Disbursements
Step 1 Fixed £48 + Variable - electronic delivery £3 - total 51.00
Step 3 Fixed £228.10 + Variable - electronic delivery £3 - total 231.10
Total Disbursements Steps 1 and 3 282.10
Total Cost Steps 1 and 3 2,432.10

In the unlikely event Step 2 were necessary, then add:

£ £
Pre-Appointment Fee 950.00
Disbursements 121.50 1,071.50
Total Steps 1, 2 and 3 3,503.60

Example 2: a company with 5 creditors, including 2 employees, communication with creditors: 3 by email, 2 by post

Step 1

£
Pre-Appointment Fee: Base 1,950.00
Creditors [3 x £100] 300.00
Employees [2 x £150] 300.00
2,550.00
Disbursements
Step 1 Fixed £48 + Variable - electronic delivery £3, postal £7.20 [2 x £3.60] - total 58.20
Step 3 Fixed £228.10 + Variable - electronic delivery £3, postal £7.20 - total 238.30
Total Disbursements Steps 1 and 3 296.50
Total Cost Steps 1 and 3 2,846.50

In the unlikely event Step 2 were necessary, then add:

]
£ £
Pre-Appointment Fee 950.00
Disbursements - [add postal delivery to creditors 2 x £3.60] 128.70 1,078.70
Total Steps 1, 2 and 3 3,925.20

Example 3: for a company with 16 creditors, including 5 employees, communication with creditors: 10 by email, 6 by post

Step 1

£
Pre-Appointment Fee: Base 1,950.00
Creditors [10 x £100] 1,000.00
[1 x £90] 90.00
Employees [5 x £140] 700.00
3,740.00
Disbursements
Step 1 Fixed £48 + Variable - electronic delivery £3, postal £21.60 - total 72.60
Step 3 Fixed £228.10 + Variable - electronic delivery £3, postal £21.60 - total 252.70
Total Disbursements Steps 1 and 3 325.30
Total Cost Steps 1 and 3 4,065.30

In the unlikely event Step 2 were necessary, then add:

Pre-appointment Fee £950 + [6 creditors x £50 per creditor] 1,250.00
Disbursements £121.50 + [postal delivery to creditors 6 x £3.60] 143.10 1,393.10
Total Steps 1, 2 and 3 5,458.40

Example 4: for a company with 35 creditors, including 10 employees, communication with creditors 26 by email, 9 by post

Step 1

£
Pre-Appointment Fee: Base 1,950.00
Creditors [10 x £100] 1,000.00
[10 x £90] 900.00
[5 x £80] 400.00
Employees [10 x £130] 1,300.00
5,550.00
Disbursements
Step 1 - Fixed £48 + Variable - delivery £3, postal £32.40 - total 83.40
Step 3 - Fixed £228.10 + Variable - electronic delivery £3, postal £32.40 - total 263.50
Total Disburse ments Steps 1 and 3 346.90
Total Cost Steps 1 and 3 5,896.90

In the unlikely event Step 2 were necessary, then add:

£ £
Pre-Apointment Fee - £950 + [25 creditors x £50 per creditor] 2,200.00
Disbursements - £121.50 + [postal delivery to creditors 9 x £3.60] 153.90 2,353.90
Total Steps 1, 2 and 3 8,238.00

(b) - Disbursements applicable to Steps 1, 2 and 3

Step 1 - Pre-Appointment £
Disbursements
Stationery (includes folders, dividers, plastic sleeves etc.) 30.00
Photocopying/Printing (Deemed Consent Procedure to send out and receive back signed documents from
the director/members total of 120 pages, charged at 15p per copy)
18.00
Total 48.00

Step 2 - In the event a physical meeting of creditors is required to convene £
Disbursements
Fixed £118.50 [Advertising £83 + £25 room hire + Printing/Photocopying (min 5 copies) £10.50 + 118.50
Electronic delivery of notice and other documents convening physical meeting £3) [(Postal Delivery at
an additional charge of £3.76 per creditor [20 pages at 15p per copy = £3.00 + 0.76p postage], where
applicable
3.00
Total 121.50

Step 3 - Post Appointment £
Disbursements
Advertising 2 x £83 166.00
Bonding - as per Bonding insurance table (see note (c) – minimum asset value up to £10,000) 44.00
Postage (10 x 0.76p) for non-creditor communications during liquidation 7.60
Electronic Delivery of communications to creditors:
Photocopying/ Printing – 5 hard copy sets minimum for the file – approx. 14 pages at 15p per copy x 5 sets 10.50
Postal Delivery of communications to creditors - 14 pages at 15p per copy = £2.10 per creditor
Total 228.10

(c) Bonding Insurance

Under Insolvency Law all estates must be bonded by the insolvency practitioner concerned. Bond premium payable is based on the bands of estimated realisable value of the company's assets (as reflected in the Statement of Affairs), as per the table below.

Band of Asset Value Premium
£0 to £499 £30
£500 to £5,000 £44
£5,001 to £10,000 £44
£10,001 to £25,000 £80
£25,001 to £50,000 £186
£50,001 to £100,000 £276
£100,001 to £250,000 £510
£250,001 to £500,000 £720
£500,001 to £1,000,000 £1,030
£1,000,001 to £2,000,000 £1,520
£2,000,001 to £3,500,000 £1,820
£3,500,001 to £5,000,000 £2,730
£5,000,001 plus £3,040

Source: AUA Insolvency Risk Services Limited - Table C Sterling Ford - 1 March 2020


(d) Other Charges

  1. If there are assets of material value (other than freehold/leasehold property), an independent valuation may be required, which we would arrange through a Chartered Valuation Surveyor. On the basis that the valuation can be performed without a physical inspection, the valuation fee would be approx. £250 plus VAT.

  2. Should the directors/third parties require the right to trade the business on to be licensed across to another company during the period from our instructions to the date of the statutory meetings, we would charge a further £500 plus VAT for drawing up the licence to permit the trading on of the business to be carried on by the other company entirely at its own risk, but subject to the payment of a licence fee [typically, the greater of 75% of projected net profit after tax for the short period of trading or £500 plus VAT], in order to preserve the value of that business until an independent valuation of such business has been obtained and any offer to acquire the business has either been considered by and voted on by creditors at the virtual/physical creditors' meeting convened under rules 15.5, 15.6 and 15.13 The Insolvency (England and Wales) Rules 2016 (“the Rules 2016”), or otherwise disposed of by the duly appointed liquidator

  3. Notice required: For A General Meeting of members (GM), if short notice is not prohibited by Company's Articles, it may be convened on say 3-7 days' notice, Deemed Consent – at least 3 business days' notice to be given by email- at least 5 business days' notice by first class post, virtual/physical meetings - require 14 days' notice, which must be advertised

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