Purnells Insolvency Practitioners

Strike Off Application v Creditors Voluntary Liquidation

Given the new landscape we are all living and working in due to Covid-19, I wanted to update a blog that we first produced over four years ago, which looked at the benefits and drawbacks of a Creditors Voluntary Liquidation ("CVL") versus a Strike Off Application.

A CVL is a formal insolvency process designed to bring the life of a company to an end quickly and efficiently under The Insolvency Act 1986.

A Strike Off Application, which is also sometimes called the “SpongeBob Method”, is a process that can be used to bring the life of a dormant company to an end using Section 1003 of the Companies Act 2006. A company is usually defined as being dormant if it has not traded for 3 months or more.

The main points of comparison are as follows:


Price
One of the biggest differences between the two processes is the cost involved.

To pay an Insolvency Practitioner to place a company into liquidation, the average fee is approximately £4,000 plus VAT because there is a large amount of work involved. Not only does all of the legal documentation need to be prepared and issued to the relevant parties, but the Insolvency Practitioner also needs to:

1. Call and hold all of the necessary meetings and decision procedures.
2. Undertake a statutory investigation.
3. Make a report to The Insolvency Service on the conduct of the directors.
4. Realise and distribute the assets.
5. Report to all relevant stakeholders.
6. Remove the company from Companies House.

In comparison a Strike Off Application costs only £10, which is the filing fee charged by Companies House. Whilst it is extremely low cost, if you do the work yourself, there is a specific procedure that has to be followed, and if it is not done correctly the directors could be fined. This is something that Purnells could be instructed to do however, which would ensure that the procedure is followed correctly.


Duration
If a company has already ceased trading for 3 months an immediate application can be made to strike it from the Register. The Registrar of Companies then advertises the application in the London Gazette and if there are no objections within 2 months, the company is struck from the Register. The earliest a company could be dissolved from the Register is therefore 5 months from the date it first ceases to trade although by the time Companies House has received and processed the application, the likely timescales for dissolution would be more in the order of six months from the date on which the Company first ceased to trade.

Furthermore, should a creditor object to the dissolution, during the advertisement period then the application will be suspended for 6 months. After that 6 month period of suspension has expired, Companies House will re-advertise the notice. Without active correspondence with the objecting creditor therefore, the Company can become stuck in a cycle of application and objection.

It used to be the case that HMRC were the main creditor who objected. Now that the majority of companies have obtained a Government backed Bounce Back Loan however, we are finding that banks are also now routinely objecting to strike off applications. This is because it is currently thought that the Government Guarantee will only be honoured in circumstances where companies have been placed into a formal insolvency procedure.

In a CVL, once Notices are signed, the Company is placed into Liquidation approximately 16 days later. The creditors have no say in whether the Company is placed into Liquidation, as this is a decision for the shareholders. A Creditors Voluntary Liquidation therefore provides directors with more certainty and control than a Strike Off Application.


Employee Claims
As a CVL is a recognised insolvency process, The Redundancy Payments Service will pay any valid employee claims for unpaid wages, holiday pay, redundancy pay and notice pay up to statutory limits.

This is also true for directors, as more often than not directors also have employee claims, and the sums realised can be used to settle the costs of the liquidation. If you are a director and wish to see whether you can claim redundancy, follow the link to our website for further information.

As a Strike Off Application is not a formal insolvency process it is not recognised by the Redundancy Payments Service and therefore they will not process and pay any employee claims including those of the directors.


Creditor Pressure
In a CVL, once the Company has entered into liquidation all creditor letters, pressure for payment, bailiff action etc gets passed to the Liquidator to deal with. Creditors will no longer be able to chase directors for the debt due.

With a Strike Off Application however, because it is not an Insolvency Act process, creditors are able to continue to chase directors for payment until the Company has been dissolved, which as indicated above, can take a considerable amount of time to achieve. Furthermore bailiffs and sheriffs can still attend at premises to try to seize company assets. This can become a particular problem if the directors have used their home address as the company’s registered office, as clearly no-one wants bailiffs or sheriffs attending at their home.


Conclusion
A Creditors Voluntary Liquidation is a quicker and more efficient process than a Strike Off Application however, it comes at a cost. Having said that however, if there are assets in the Company, or if the directors are entitled to claim redundancy, then it may be possible for the company to be liquidated at no direct cost to the directors personally.

The dissolution process is far cheaper but takes considerably longer and affords none of the protections and benefits of a CVL, such as the payment of employee claims, creditor pressure on directors being relieved, etc. Also if the Company has a Bounce Back Loan the director may find it is not possible to go down the strike off route and a liquidation may be required, in any event.

That is not to say that the dissolution process is always the wrong process to choose. For some companies it is the perfect choice. That is why there is never a "catch all" solution as to how to deal with your company and we will always provide a free first meeting and letter of advice to clients, which enables them to choose the best route for them having regard to the advantages and disadvantages of each option and their particular circumstances.

Should you wish to discuss Creditors Voluntary Liquidation, Strike Off Applications, or any other insolvency matter, please do not hesitate to contact us on Telephone: 01326 340579, Email: [email protected]

Corporate Insolvency and Governance Act 2020 -
Extension of Temporary Measures

The temporary measures introduced by the Corporate Insolvency and Governance Act were due to expire variously at the end of March and April 2021. The Government announced that it will extend some temporary measures into the coming months as the economy continues to emerge and recover from the pandemic.

The insolvency measures that will be extended are:

• Suspension of serving statutory demands and restrictions on winding up petitions will be extended until 30 June 2021.

• Small business exemption from the termination clause requirement will be extended until 30 June 2021.

• The relaxation of the wrongful trading provisions will be extended until 30 June 2021.

• Temporary moratorium rules for the monitor will be extended until 30 September 2021.

• Modifications to moratoriums being extended to 30 September 2021:

o Companies subject to a winding up petition can access a moratorium by filing papers at court (rather than having to make an application to court).
o Companies who have been in a CVA or administration within the last 12 months can obtain a moratorium (usually they would not be eligible).

The Impact of the Coronavirus on Insolvency

We are currently living and working in unprecedented times with the nationwide lockdown and the financial impact of the Coronavirus still developing.

So much is happening, so quickly, that it is hard to keep up, particularly if you are having to advise clients on the impact of the Coronavirus and the options open to them and their business.

Accordingly, I am going to give a brief overview of a few of the issues in this blog:

https://www.purnells.co.uk/News/Post/2020-03-27-The-Impact-of-the-Coronavirus-on-Insolvency

Wrongful Trading
– The Ronseal Test – Does It Do What It Says On The Tin?

Chris Parkman reviews the law behind wrongful trading and provides an analysis of the latest case law to determine how to establish whether wrongful trading has occurred and how to work out a director's exposure. Chris also considers whether the current position is fair and does the law provide creditors with the protection they need.

To review the full blog click the link below:

https://www.purnells.co.uk/News/Post/2019-10-14-Wrongful_Trading

First Compensation Order

In 2015 the Government brought in new legislation to enable The Insolvency Service to seek Compensation Orders against directors of insolvent companies who have been disqualified as acting as a director, and whose conduct has caused a loss to one or more creditors.

Following a recent case, Re: Noble Vintners, the Courts ordered a director to pay £560,000 in compensation to the creditors.

The legal implications for compensation orders are quite unique and there was some debate as to how they would work, and whether they would act in line with the pari passu principle of Insolvency Law, i.e. everyone gets a rateable share depending on the level of their debt.

However, Re: Noble Vintners has cleared up this debate.

The Court indicated that £460,000 could be allocated directly to several creditors; an Order was therefore made that £460,000 should be paid direct to those creditors.

It was Ordered that the balance of £100,000 be paid to the Company for the benefit of the general body of creditors.

The Judge made specific reference in his order that critics had expressed concern that the legislation may cause “disruption of the priorities of distribution …… and the principle of pari passu distribution”. However, the Judge stated that Compensation Orders were focused on the loss caused to specific creditors and that the legislation was therefore “a new, free-standing, regime, and must be interpreted as such”.

The Insolvency Service has wanted to strengthen the Directors Disqualification regime for several years and is obviously pleased with the outcome of the case.

David Brooks, Chief Investigator for the Insolvency Service, said: “This case illustrates that compensation orders can be a valuable tool for the Secretary of State in seeking recompense for creditors to supplement the recovery actions available to office-holders who have been unable to take recovery action within the insolvency regime.”

It is clear that directors are facing ever greater scrutiny and exposure for their actions; therefore taking appropriate steps and professional advice will become ever more important. Further information on the Company Director Disqualification Act 1986 can be found here:
https://www.purnells.co.uk/limited-company/directors-disqualification-proceedings

If you are a director, your company is in financial difficulty and you would like a free first meeting to discuss your situation please call Chris Parkman on 01326 340579 or email him at [email protected]

Directors Duties Can Survive Insolvency
Please see our latest blog for more information...

https://www.purnells.co.uk/News/Post/2020-02-03-Directors-Duties-Can-Survive-Insolvency

Purnells blog takes a look at 2 new insolvency procedures proposed by the Government to provide Directors and Insolvency Practitioners with more options in order to try to save the life of companies as a going concern.

The first new procedure being proposed is the Preliminary Moratorium which will allow struggling companies time and breathing space to try and turn their company around.

To read the full article, please click the link below:

https://www.purnells.co.uk/News/Post/2019-12-10-The-Insolvency-Corporate-Governance-Consultation

The Government has announced that it has commissioned an independent review of the loan charge scheme.

The Loan Charge Scheme has been seen by many as controversial due to the fact that many parties believe that the legislation is retrospective. Accordingly this independent review will be welcome by many people affected by the scheme, which is scheduled to be completed by mid-November.


HMRC’s position on the matter is as follows:

Customers in the settlement process have the option to either pause the settlement process and wait for the outcome of the review before making a decision on settlement or the option of proceeding and finalising settlement before the outcome of the independent review.

For those in the process of settling who have paused settlement, HMRC will continue its existing practice of not charging statutory late payment interest from 1 October 2018, or if later, the month in which the individual provided the required settlement information to HMRC. They will not need to complete an additional information return by 30 September 2019.

The review is expected to conclude in the mid-November and published guidance can be found online at https://www.gov.uk/government/publications/disguised-remuneration-independent-loan-charge-review.


If you have been affected by the loan charge scheme and would like to discuss the options available to you, please do not hesitate to contact Chris Parkman by telephone on 01305 458383 or by email at [email protected]

We are thrilled to announce that Purnells are Finalists for the Boutique Insolvency and Restructuring Firm of the Year in The Turnaround, Restructuring & Insolvency (TRI) Awards 2019.

The awards will champion the companies and individuals leading the charge for diversity across the TRI arena.

Here at Purnells we are all very proud to have reached the finalist stage and would like to thank everyone for their continued support.

Winners are to be announced at a black tie award ceremony on 13 November 2019.