Creditors’ Voluntary Liquidation (CVL) is a formal insolvency process initiated by the company’s directors when they realise the company is insolvent and can no longer pay its debts. In this process, the company voluntarily chooses to wind up its affairs and liquidate its assets, with creditors having the right to appoint a liquidator to oversee the process.

Key Facts for Creditors

Initiation: Unlike compulsory liquidation, which is initiated by a creditor through the courts, CVL is initiated by the company’s directors. They propose winding up the company because it is no longer financially viable.

Creditors’ Role: Creditors are invited to a meeting (often virtual) to confirm the appointment of a liquidator and to discuss the company’s financial situation.

Liquidation Process: Once the liquidator is appointed, they take control of the company’s assets, sell them, and distribute the proceeds to creditors based on legal priority.

The CVL Process

1. Directors’ Decision to Liquidate:

The company’s directors decide that the business is insolvent (unable to pay its debts) and propose liquidation.

A resolution is passed by the shareholders agreeing to wind up the company voluntarily.

2. Meeting of Creditors:

A meeting of creditors is called (usually within 14 days of the shareholders’ decision).

Creditors receive notice of the meeting, along with a statement of affairs, showing the company’s assets and liabilities.

Creditors can ask questions, review the company’s financial status, and vote on the appointment of the liquidator.

3. Appointment of Liquidator:

At the creditors’ meeting, the liquidator is appointed. While the directors can nominate a liquidator, creditors have the final say on who is appointed.

4. Liquidator’s Role:

The liquidator takes control of the company, collects and sells the company’s assets, investigates its affairs, and distributes any available funds to creditors.

They also investigated the directors’ conduct to ensure they did not act improperly while the company was trading insolvent.

5. Asset Realisation:

The liquidator liquidates (sells) the company’s assets, such as property, stock, or equipment, to raise funds.

The proceeds are then used to pay creditors according to the legal priority of claims.

6. Distribution of Funds to Creditors:

Secured creditors are paid first if they have security (such as a mortgage or charge) over the company’s assets.

Preferential creditors—including employees owed wages and certain taxes—are paid next.

Unsecured creditors receive payments from any remaining funds. They typically receive only a portion of what they are owed, depending on the available funds.

Rights and Responsibilities of Creditors

• Voting at Creditors’ Meeting:

Creditors can vote on the appointment of the liquidator, typically either agreeing with or rejecting the directors’ choice.

• Submit Proof of Debt:

Creditors must submit a proof of debt form to the liquidator in order to claim their share of any funds that are recovered from the liquidation.

• Updates from Liquidator:

Creditors are entitled to receive updates from the liquidator on the liquidator’s progress, including how much money is expected to be recovered and distributed.

• Challenge Liquidator’s Decisions:

If creditors believe the liquidator is not acting in their best interests, they can challenge certain decisions, though this typically requires legal advice.

Potential Outcomes for Creditors

Full or Partial Repayment:

Creditors may receive a portion of what they are owed, depending on the company’s available assets and their status (secured, preferential, or unsecured). Full repayment is unlikely in insolvency cases.

No Recovery:

If the company has few or no assets, unsecured creditors may receive little to no repayment. The amount creditors receive is based on the sale of the company’s assets.

Investigation into Directors’ Conduct:

The liquidator will review the conduct of the company’s directors prior to the liquidation. If they are found guilty of wrongful trading or misconduct, creditors may benefit from actions taken against the directors (e.g., personal claims).

Advantages of CVL for Creditors

More Control: Creditors are involved in the process and have a say in the appointment of the liquidator.

Quicker Resolution: CVL tends to be faster than compulsory liquidation as it avoids lengthy court proceedings.

Asset Recovery: The liquidator’s role is to maximise the recovery from the company’s assets and distribute them fairly to creditors.

Disadvantages of CVL for Creditors

Limited Asset Recovery: The company’s assets may not cover all debts, especially for unsecured creditors.

Ongoing Trading Losses: If the directors delayed the decision to liquidate, the company might have incurred additional losses, reducing what’s available to creditors.

Potential for Limited Control: While creditors vote on the liquidator’s appointment, the day-to-day decisions in the liquidation process are made by the liquidator.

Costs Involved for Creditors

No Direct Costs for Creditors: Unlike compulsory liquidation, creditors do not need to pay court fees to initiate the process. However, the costs of the liquidation are paid from the company’s assets, reducing the funds available to distribute to creditors.

How to Submit a Claim

Receive Notice:

Once the liquidation process starts, creditors will receive notice of the liquidation and the creditors’ meeting.

Submit Proof of Debt:

Creditors need to fill out and submit a proof of debt form to the liquidator, outlining the amount owed and supporting documents (e.g., unpaid invoices).

Attend Creditors’ Meeting:

Creditors can attend the meeting to discuss the liquidation and vote on the liquidator.

Creditors’ Legal Rights

Right to Information: Creditors can request information about the liquidation process and the company’s financial status from the liquidator.

Right to Challenge: If creditors believe the liquidator is not acting properly or is mishandling the process, they can apply to the court to challenge the liquidator’s actions.

Right to a Fair Distribution: Creditors are entitled to receive distributions based on the company’s available assets and the legal priority of their claims.

Frequently Asked Questions

What is the difference between CVL and compulsory liquidation?

CVL is initiated by the company’s directors voluntarily, while compulsory liquidation is forced by creditors through a court order.

How much will I get back?

This depends on the value of the company’s assets and where you rank in the creditor hierarchy (secured, preferential, or unsecured). Unsecured creditors often receive only a portion of their claims.

Can I stop the liquidation?

No, once the company’s shareholders and creditors approve the liquidation, it cannot be stopped unless all debts are settled.

NB: The Creditor Services team at PKF offer a free service to all Top Service members and can assist with the following:

• Advice and support regarding any formal or non-formal insolvency process.
• A bespoke lodging and proxy management service which alleviates the administrative burden for creditors and reports back on all insolvencies in a simplified format.
• Representation at creditor meetings.
• Seeking the appointment of licensed insolvency practitioners of PKF to investigate insolvent entities and creditor concerns.

If you would like to more about the services offered to Top Service members by PKF Creditor Services, please get in touch via creditorservices@pkfgm.co.uk

Understanding the CVA

When a limited company is struggling financially, the directors might consider a Company or Corporate Voluntary Arrangement (CVA) as an alternative to liquidation. This option is specifically available to limited companies. Sole traders and partnerships would need to explore different avenues, such as an Individual Voluntary Arrangement (IVA).

What is a CVA?

A CVA is a legally binding agreement between a company and its creditors, aimed at allowing the company to continue trading while repaying a portion of its debts over time, typically at a fixed rate. However, for creditors, a CVA often means that only a certain percentage of the debt will be recovered, if anything at all. While CVAs are generally seen as a way to avoid a company becoming completely insolvent, they are not always viewed positively by creditors due to the potential for limited returns.

The Proposal Process

The terms of a CVA are outlined in what is known as the “proposal.” This proposal is usually drafted by a Licensed Insolvency Practitioner, who charges a fee for their services – a fee that is paid by the company itself. 

The Insolvency Practitioner will then call a meeting of the company’s creditors. For the CVA to be approved, 75% of the creditors (by value of the debt) must agree to it. This means that a single large creditor could have a decisive vote in the process.

Impact on Creditors

If the CVA is approved, it legally binds all creditors who were notified of the meeting, whether or not they chose to vote. The Insolvency Practitioner is then responsible for ensuring the company makes repayments according to the proposal terms, for which they charge an additional fee – again paid by the company. 

During the CVA, creditors are prevented from taking independent action to recover their debts.

However, it is important to note that while CVAs are generally agreed upon by creditors to avoid the total insolvency of the company, they do not guarantee full repayment. Creditors are often left with only a fraction of what they are owed.

Public Record and Perceptions

Details of the CVA are made public and recorded at Companies House. This information is subsequently picked up by credit reference agencies and included in credit reports on the company. While a CVA might provide a company with an opportunity to reorganise and continue trading, it can also negatively impact its reputation. Many businesses are reluctant to engage with companies under a CVA, viewing them as high-risk. Customers might be hesitant to buy from them, and new suppliers could be wary of extending credit. This can make it challenging for companies to trade “normally,” contributing to a high failure rate for CVAs.

Summary

For creditors, a CVA is often a less-than-ideal outcome but can be a practical alternative to a company becoming insolvent. While it may result in only partial repayment, it can sometimes be the best available option. Understanding the terms, implications, and potential outcomes of a CVA is crucial for creditors navigating these challenging situations.

For more information, please contact helpdesk@top-service.co.uk.

Celebrating our Impressive Debt Recovery Results – £100 Million (& Counting)

Our chasing letters and emails boast a remarkable 90% success rate for our members, proving to be an effective tool for prompting slow payers to settle their debts. Members benefit from up to 10 free chasing letters per month and unlimited free chasing emails.

In cases where slow payers and bad debtors require external intervention, our agency—well-regarded within the construction industry—is ideally positioned to provide the necessary push. Our chasing letters, with their impressive success rate, remain a popular choice for initiating the recovery process.

We have a choice of two chasing letters:

• Overdue Invoices Reminder Letter
• Notice of 3rd Party Action

Sent on our letterhead from our office it is the ideal way of reminding your customer payment is due or informing them of potential 3rd party action.

Our popular and effective chasing letters can also be sent out by email with no restrictions to the number you can send.  Send emails to your debtors through our website at the touch of a button.

Celebrating our Impressive Debt Recovery Results – £100 Million (& Counting)

We are delighted to announce a major milestone in our journey—our debt recovery services have successfully collected over £100 million for our members in the construction industry in the last 12 months.

 One of the most common questions we get asked is Can I claim costs I incur Using a debt collector, Our Commercial Collections Supervisor and Debt Recovery Specialist, Bethany Gresswell explains all in this video.

Celebrating our Impressive Debt Recovery Results – £100 Million (& Counting)

We understand that trading relationships can be delicate and the subject of debt recovery can be a sensitive topic, this is why our approach in collecting your overdue balance will change depending on your trading relationship.  When further intervention is needed, our agency is well-regarded in the construction industry for delivering results.

One of the most common questions we get is Will using a debt collection agency ruin business Our Commercial Collections Manager and Debt Recovery Specialist, Charlie Barrett – Meade explains all in this video.

 Our no collection, no fee policy ensures you have nothing to lose and everything to gain

 Our no collection, no fee policy ensures you have nothing to lose and everything to gain. Call 01527 50990 to speak with one of our team members to find out more today.

We are delighted to share that in the last 12 months, our efforts through our debt recovery services have resulted in successfully collecting over £100 million for our members of the construction industry. 

This milestone is a testament to our commitment to professionally representing our members in a collections capacity, our drive to achieve results and the hard work & expertise of our team.

Our Approach to Debt Recovery

We approach debt recovery with a drive to achieve results, efficiency and expertise, this in combination with a team of skilled collectors with a proactive approach to collections, our construction industry expertise & using our industry specific credit information, has resulted in significant collections made for our members. 

We understand that trading relationships can be delicate and the subject of debt recovery can be a sensitive topic, this is why our approach in collecting your overdue balance will change depending on your trading relationship. 

Every case passed to us is unique and this is why our teams are not scripted and will work with you to create a bespoke collection strategy suited to your case. 

Our debt recovery services have no collection no fee, so if we are unsuccessful in collecting your overdue balance, there is no commission to be paid. 

Speak with one of our team members today on 01527 503990 to find out more about our debt recovery services.

The Insolvency Service has released the latest statistics for August 2024, offering key insights into the state of insolvency in the UK. These figures are essential for businesses looking to understand the current economic climate and adapt accordingly.

Key Highlights for August 2024:

• Total Company Insolvencies:
  There were 1,953 company insolvencies, representing a 9% decrease from July 2024, and a 15% decrease from August 2023.
• All types of company insolvency were lower in August 2024 compared to July 2024.

Breakdown of Insolvency Types:

• Creditors’ Voluntary Liquidations (CVLs):
  • 1,542 cases, down 7% from July 2024.
  • While showing a monthly drop, CVLs remain the dominant form of company insolvency.
• Compulsory Liquidations:
  • 279 cases, a 12% decrease from July 2024, but 6% higher than August 2023.
• Administrations:
  • 112 cases, a significant 25% decrease from July 2024.
  • This sharp decline suggests fewer companies opted for administration in August.
• Company Voluntary Arrangements (CVAs):
  • 20 cases, marking a 20% decrease from the previous month.

Yearly Comparison of Insolvency Types (August 2023 vs August 2024):

• Overall Insolvencies:
  August 2024 saw 333 fewer cases than August 2023, reflecting a 15% decline.
• Year-on-Year Insolvency Trends:
  • Compulsory Liquidations: Increased by 6%.
  • Creditors’ Voluntary Liquidations: Decreased by 15%.
  • Administrations: Dropped by 40%, indicating a significant reduction in this type of insolvency.
  • Company Voluntary Arrangements (CVAs): Surged by 82%, highlighting a growing preference for structured recovery agreements.

Month-on-Month Comparison (July to August 2024):

• Overall Insolvency Figures:
  August 2024 saw a 9% decline in insolvencies compared to July 2024, with 191 fewer cases.
• Month-on-Month Changes by Type:
  • Compulsory Liquidations: Down 12%.
  • Creditors’ Voluntary Liquidations: Down 7%.
  • Administrations: Down 25%.
  • Company Voluntary Arrangements (CVAs): Down 20%.

Insolvency Rate:

Between 1 September 2023 and 31 August 2024, one in 180 companies on the Companies House effective register entered insolvency. This equates to 55.5 per 10,000 companies, slightly higher than the rate of 55.4 per 10,000 for the same period in the previous year.

We encourage all credit management teams across the industry to stay vigilant and seek out the most valuable tools and information available. To learn more about how we can help you minimise risk and maximise cash flow, call in to speak with one of our experts today on 01527 518800.

In the world of construction, where timelines stretch over months and sometimes years, managing cash flow can be a challenge. One of the most overlooked aspects in this arena is the retention fund—a small but significant percentage of the contract value held back by the main contractor. This practice, while common, often leads to large sums of money being left unclaimed, simply because it’s not a priority. But what if we told you that these retention funds could be the hidden gem in your finances?

Understanding Retention

Retention is a percentage, typically between 1.5% and 5% of the contract value, that the main contractor withholds to ensure that any defects in the work can be rectified before the final payment is made. Half of this retention is usually released upon the satisfactory completion of the project, while the remaining 50% is held back until the end of the maintenance period—a time frame that can stretch beyond 12 months after project completion.

The idea behind retention is simple: it provides a financial safety net for the contractor, ensuring that any post-completion issues are resolved before the final payment is made. However, for many in the industry, chasing these funds can be a tedious and time-consuming process, often resulting in the money being forgotten or deprioritised.

The Cost of Forgetting Retention

Retention funds may only represent a small percentage of the total contract value, but when multiplied across several projects, they can add up to a substantial amount. The problem is, many businesses simply don’t have the time or resources to follow up on these payments, especially when the maintenance period can stretch over a year.

This delay in collecting retention can have significant impacts on a company’s cash flow and overall financial health. With construction margins already tight, leaving money on the table can mean the difference between a profitable year and a financial struggle.

A Specialist Approach to Retention Collection

Recognising the challenges that many construction companies face in collecting retention, our team of specialists offers a service designed to take the hassle out of the process. With over 30 years of experience in the construction industry, we understand the intricacies of these contracts and have developed a streamlined approach to ensure that our clients receive what they’re owed.

Our “No Collection, No Fee” model means that we only take a commission—25%—when we successfully recover your funds. This risk-free approach has been a game-changer for many businesses, allowing them to focus on their core operations while we handle the complex task of retention recovery.

Don’t Let Retention Slip Through the Cracks

In an industry where every penny counts, retention is an untapped resource that too many businesses overlook. By actively managing and collecting these funds, construction companies can unlock a valuable source of revenue that can improve cash flow and support ongoing operations.

If you’ve been putting off chasing retention payments, now is the time to act. With the right support, you can ensure that this hidden gem in your finances doesn’t go unclaimed.

For more information on how we can help with retention collection, contact us today.

It’s no secret that the surety market has hardened and we are currently experiencing a contraction of capacity, restriction of acceptable wordings and underwriters, and their reinsurers, are being far more risk adverse than previously. 

With this in mind, we spoke to our friends over at Attis Credit Solutions about the impact the changes in the market are having. 

There have been significant market failures within the construction sector and some sizable bonds called over the last twelve months.

Increasing inflationary pressures, a general lack of liquidity, material and labour shortages, fallout from the covid pandemic and continued implications of BREXIT, all have a part to play in the spike in construction insolvencies we have recently seen. 

As published in a number of articles recently, due to the adverse sector conditions QBE and First Underwriting have made the decision to stop providing capacity into the construction sector, adding to the temporary lack of overall capacity. 

Despite the above challenges Surety bonds continue to be an attractive alternative to guarantees issued by a bank, especially relevant, considering banks often take a secured position and ringfence funds to the aggregate value of the guarantees issued. A surety is unsecured, freeing up working capital to use for growth and development.  

Positively, QBE can still be accessed via the Evolution MGA, and we have seen two new market entrants in the past 24 months, actively writing construction. We are also expecting new market entrants writing construction in the short to midterm on strongly rated paper – it’s not all doom and gloom!

Considering the challenges currently facing the surety market it is of paramount importance to ensure you have a specialist surety broker who is proactive, forward thinking and maximises the potential of the surety market to gain you competitive advantage. 

Emma Reilly, CEO at Top Service Ltd adds:

Whilst surety bonds remain an attractive option for large projects they nor other credit insurance options entirely replace the need for robust and effective credit management practices and tools. In the right circumstances, surety and trade credit insurance work extremely well when coupled with the right credit information and recovery options. 

It remains of paramount importance that suppliers to the construction industry understand who they are dealing with, the risks associated with who they are dealing and how the potential failures of their customers, customers can impact the trading relationships. 

Remaining vigilant and reacting quickly to critical financial changes, leadership changes and changes in payment patterns to other suppliers should remain top of the list to support businesses with minimising debt and maximising cash. 

Insights from the latest insolvency statistics released by The Insolvency Service for July 2024. These figures offer a valuable look at the current insolvency landscape in the UK and can help your business navigate these challenging times.

Key Highlights from July 2024:

Total Company Insolvencies: There were 2,191 company insolvencies in July 2024, reflecting a 7% decrease from June 2024, but a 16% increase from July 2023.

Types of Insolvencies:

• Creditors’ Voluntary Liquidations (CVLs): 1,691 cases, down 9% from June 2024, but still making up 77% of all insolvencies.
• Compulsory Liquidations: 320 cases, the highest monthly number since August 2018, up 5% from June 2024, and 27% higher than July 2023.
• Administrations: 155 cases, marking a 10% decrease from June 2024.
• Company Voluntary Arrangements (CVAs): 25 cases, up 9% from the previous month.

Month-on-Month Comparison:

Company insolvency numbers in July 2024 were lower than in June 2024.

📅 In July 2024, there was an 7% decrease in insolvency cases compared to June 2024, marking a decrease of 172 cases.

Month-on-Month Changes in Insolvency Types (June to July Comparison):

• 🚫 Compulsory Liquidations: Increased by 5%
• 📈 Creditors’ Voluntary Liquidations: Decreased by 9%
• 🏢 Administrations: Decreased by 10%
• 📄 Company Voluntary Arrangements: Increased by 9%

Yearly Comparison of Insolvency Types:

📈 Comparing July 2024 with the same month in the previous year reveals a notable increase. There’s been a 16% increase in insolvency cases, with July 2024 witnessing 301 more cases than July 2023.

Changes in Insolvency Types Year on Year:

• 🚫 Compulsory Liquidations: Increased by 27%
• 📈Creditors’ Voluntary Liquidations: Increased by 15%
• 🏢 Administrations: Increased by 6%
• 📄 Company Voluntary Arrangements: Increased by 32%

🔍 The decrease in overall insolvencies month-on-month may seem encouraging, but the significant increase in compulsory liquidations signals the importance of remaining vigilant. With the right tools and strategies, you can minimise risk and safeguard your business’s cash flow.

For tailored advice on how to navigate these trends and protect your business, our team of experts is ready to assist you. Contact us today at 📞 01527 518800 to learn more about how we can support your credit management efforts.