When a winding up petition comes sliding into your doorstep then you have to act fast and smart about it. This situation is no child’s play and it puts a lot of threat and risk to the company you have put your sweat and blood on, figuratively that is. To help you with that, AABRS came up with a checklist on the tasks for you to do when faced with winding up petitions.
- Know what you are up against.
First things first, do you even know what a winding up petition is? You don’t? You do but just a smidge? Defined, it pertains to a court order that forces an insolvent company into compulsory liquidation. The order is released as an answer to a petition brought up by corporate creditors who want to collect the amounts due them by the entity in question. There is much more to this and it is your job to know. You cannot face an enemy that you are clueless about.
- Hire a qualified and trusted liquidation and insolvency practitioner.
You need an expert to handle the situation. After all, no entrepreneur is fully adequate when it comes to handling things like this. You will be provided with options and made to understand the situation best. At the same time, you will have professionals to see things through and help you make the most out of a bad situation.
- Look into your operations and financial situation.
Take out your reports and financial statements and see what went wrong. Insolvency is quite an obvious case. By simply looking into the reports, an entity may already have inkling as to whether or not it is in financial distress. If you are solvent then you have to prove it to overturn the creditors’ claims. If you are otherwise then you may need to rethink your options to minimize losses as much as possible.
- Cease trading and operations.
When winding up petitions have indeed risen to the surface due to insolvency, the entity must cease trading. It is a must that the court order is upheld. At the same time continuing operations would be deemed illegal and unfair to creditors and clients. It’s a sad thing to do but one that must be done. Moreover, directors may be held personally liable for doing so. It must be remembered that it is illegal to continue operations under full knowledge of insolvency.
A Members Voluntary Liquidation can be used in many ways and for various reasons, a popular one being that for purposes of retirement. Another one includes that of reinvesting your money. Entrepreneurs and owners may want to liquidate the company in order to withdraw their share in it and open up a new shop, invest in stocks and real estate or put them somewhere else where they are bound to grow and make even more profit.
Sometimes, opportunities knock on your door and they are not only feasible and promising but also something that stirs your interest. Entrepreneurs are known to be risk takers and at the same time they do not settle for less. There’s always the pursuit for growth, expansion, success and achievement. At the same time, one cannot simply withdraw all your capital in your business in just one snap. You need formalities and a legal process to do it. This is what an MVL is called for. It seeks to formally close down the solvent entity, liquidate its assets, pay creditors and distribute to owners and/or shareholders.
During the course of the process, the company must first come up convene with the shareholders and majority of the board must agree to the MVL. Thorough examination shall also be done in order to prove the actual state of the company’s financial affairs. An evidence to prove its solvency should be present. A liquidation professional and practitioner will also be called for. Meetings with the shareholders and creditors will arise too and a liquidator shall be assigned. The process continues and assets are liquidated with proceeds distributed accordingly with priority given to creditors first. Paper work and taxes shall also be filed. After the shareholders and owners receive their share, they can then use it in any way they want such a put it up for investment somewhere else.
The Members Voluntary Liquidation or MVL is a process that is only available for solvent entities. This means that only those that can fulfill their obligations as they become due for at least a twelve month period are allowed to take it. If this is not the case and the entity is instead an insolvent one, a Creditors Voluntary Liquidation or CVL will run its course instead. Remember that you cannot use the MVL to write off and run from your unpaid obligations.
A pre pack administration is rising in popularity as one of the most effective business recovery options there are. It is considered as a huge savior by many troubled companies and to find out the reason behind that, you better read on.
The Business Recovery Professionals in the UK defines pre packs as arrangements under which the trade of the entire or a fraction of a business or its assets is negotiated with a purchase preceding the appointment of an administrator who in turn will effect the sale straight away or shortly after his or her appointment.
A pre packed administration is a restructuring method that allows troubled businesses, entities that are likely to be under insolvency and those at a high risk of dissolution and/or bankruptcy to sell part of or the entire company to a buyer, oftentimes to one of its directors, to a trade buyer or to a third party, where it will then operate under new management and under a new name. In some arrangements, a buy back will be included in the contract.
Its use has been popular for troubled companies due to a number of factors. Listed below are a few of the many.
- It promotes business continuity as it strengthens the entity’s going concern. Entities at high risk of insolvency and bankruptcy often turn to immediate liquidations. There’s nothing wrong with that except if you don’t want to give up your hard work just yet. A pre pack allows operations to continue and the company to recover.
- It helps save employment. The restructuring may call for a few layoffs particularly that of redundant positions. This is still good considering that in liquidations, everyone loses their income sources.
- It retains brand image. Continuation of business says a lot for a troubled company. It means that you are still fighting through, finding means to recover and doing your best to make ends meet. Once your company has been dubbed as bankrupt, there is no more going back.
- It invigorates trust and confidence among each member of the organization. Employers saving jobs, directors finding solutions to problems and employees participating in every way they could boosts morale within the organization. Manpower has a lot to do with the success of every company.
- It also helps preserve creditor relationship and standing. A pre packed administration provides a bigger return to creditors than that achieved by liquidations. Truth be told, creditors will prefer the company to continue and pick up so that it can pay them in full than close down and pay them partially with the balance written off.
An MVL which stands for a Members Voluntary Liquidation is a formal process used to close a solvent company. Owners and shareholders may want to wind up affairs for purposes of redistribution, retirement and other business endeavors among others. There are benefits to choosing this method over the others and AABRS is here to help us determine what those are.
First of all, it should be taken into memory that the directors of the company must file a declaration of solvency. It must state that the entity has performed a full examination of the company’s affairs and that it will be able to fulfill all of its obligations within a period not exceeding 12 months. By way of a Special Resolution, the directors place the company into liquidation and will appoint a liquidator to manage the process. Assets will then be sold and the proceeds distributed to all shareholders with initial priority given to company creditors.
- The MVL in itself provides a means for the owners and shareholders to formally and properly close the company in good terms. This means that no unfinished business has been left and all issues have been settled accordingly. In a way, this upholds the image and perception that the brand has.
- Tax wise a Members Voluntary Liquidation is also truly beneficial. This is due to the fact that the distribution will be considered as a capital receipt and not as income. This makes it subjected to capital gains tax rather than income tax. This is a good thing considering that the latter has a way higher percentage than the former. Furthermore, if the entity applies for and is granted with what we call the Entrepreneurs’ Relief, the applied tax rate could even be lowered by 10%. This will not be applicable to all but if you qualify for it then all the better.
- The MVL procedure allows for a fast and timely distribution to shareholders. No one wants a bump and a long delay in getting their checks. After all, if your purpose to winding up has something to do with retirement and reinvestments for example, you will really need all the punctuality you can get.
- Lastly, AABRS stresses on the Members Voluntary Liquidation’s ability to handle corporate exits. Sometimes, although business may be considered solvent, it can be performing way beyond necessary and below standards that liquidating it while solvent becomes the best choice. Of course there are other options available and winding up may not be the choice for all thus careful analysis and planning must be done regarding this.