Creditors’ Voluntary Liquidation Vs Business Rescue

When a company is facing financial difficulties there are different options available, depending on the circumstances that the company finds itself in. Whilst in some cases, the best option may be to cut your losses and liquidate the company, this doesn’t always have to be the case. Depending on the extent of the financial distress faced by the company, it may be possible to recover the business and return it to profitability. 

So, if your company has become insolvent, or is nearing insolvency, two options you may have available to you are a Creditors’ Voluntary Liquidation (CVL) or business rescue. In order to give you a clearer idea of the best option for your business, let’s take a look at what each of these processes entail, and the main differences between liquidation vs business rescue. 

Liquidation Vs Business Rescue – What’s The Difference?

The end goals of liquidation vs business rescue are fundamentally different. Whilst liquidation is the process of closing a company down, business rescue is initially aimed at restructuring the company in order to stabilise it, with the ultimate goal of returning it to profitability. Business rescue plans will differ depending on the individual circumstances of the business. Let’s take a closer look at what a business rescue could look like for your company. 

Business Rescue

Whilst the prospect of recovering your business will always be more appealing than entering liquidation, it’s important to weigh up your options realistically. Before entering into a business rescue programme, it’s important that you’re certain the business has a realistic chance of recovery. You should consult the guidance of a licensed insolvency practitioner to advise you on whether liquidation vs business rescue is the most suitable option for your company at this stage. If there is a realistic chance of rescuing the business, the following strategies may be put in place:

Creditors Voluntary Arrangement (CVA)

Not to be confused with a CVL, a CVA is often an effective rescue plan for insolvent companies. A CVA is a binding contract between a company and its creditors to pay back some or all of its liabilities over a specified period of time. This allows the company to continue trading whilst resolving its debt, rather than closing down. The fact that a CVA allows the company to continue trading, highlights a major difference between liquidation vs business rescue. 

Administration

The process of administration protects the company from creditor pressure, providing an automatic stay on any current or pending legal actions. This is to facilitate the rescue of the company or the sale of its business and assets on a going concern basis. 

However, if the business’ debts and financial failings are deemed irrecoverable, then the best option will be to place the company into voluntary liquidation. In the case of insolvent companies, this will be a CVL. 

Creditors’ Voluntary Liquidation (CVL)

When a company becomes insolvent i.e cannot pay its liabilities as they fall due, a CVL is the most suitable option for liquidating the company. A CVL removes creditor pressure quickly and ensures that the company is wound up correctly so that business directors do not face further legal action and will be able to start over and trade in the future. 

What’s The Best Option For My Company? 

When deciding between liquidation vs business rescue, it’s important to assess your company’s financial situation accurately and realistically. You should always consult a licensed insolvency practitioner who will be able to determine if a business rescue plan is a viable option for your company, or if liquidation would be the most realistic option. 

To speak with a member of our team today about liquidation vs business rescue, please don’t hesitate to get in touch.