A message to accountants and business advisers
When directors reach the end of the road with their limited company, they’re often under immense financial and emotional pressure. There are debts. No meaningful assets. No clear way forward.
And in far too many cases, the next conversation they have—usually with an insolvency practitioner—is the one where they’re told they now need to pay to close the company down.
Creditors’ Voluntary Liquidation (CVL) is the process most often proposed. But when that process typically costs upwards of £5,000, accountants and advisers need to ask a vital question on behalf of their client:
Is this advice truly in the director’s best interest, or is it just the default path that generates fees?
Who Is the Insolvency Practitioner Acting For?
At the early stage—before a formal appointment is made—the insolvency practitioner (IP) is advising the director, not the company’s creditors. Their duty of care lies with the individual sat in front of them.
But what happens when the advice being given leads directly to a paid appointment for that same IP?
It’s an uncomfortable truth: some directors are encouraged to fund a liquidation process they are neither legally obliged nor financially able to pay for—because it suits the adviser, not the client.
What Other Options Should Be Discussed?
A director facing corporate insolvency should be presented with a full range of options, including those that:
- Do not require immediate funding from personal or family resources;
- Do not involve formal liquidation at all;
- May involve waiting for creditor action (such as a compulsory winding-up petition), depending on risk factors;
- Take into account the director’s personal situation, financial capacity, and legal position.
In some cases, a CVL may be appropriate—for example, if there are employee redundancy claims, ongoing lease liabilities, or a need to mitigate the risk of wrongful trading.
But it should never be the only route discussed.
The Moral Argument: Should Directors Fund a Liquidation?
There’s a widely held belief that directors have a moral responsibility to “tidy up” after failure by paying for liquidation. But is that belief well-founded?
Directors are under no legal obligation to fund a CVL. Many have already lost significant personal capital attempting to keep their business afloat.
Is it fair—or ethical—to expect them to borrow further or ask family members to help fund the final act of a company’s closure?
These are difficult conversations. But they must be had—openly, honestly, and without self-interest.
A Startling Statistic
Recent figures suggest that around 40% of CVLs reported in the London Gazette involve companies with no assets.
This raises a pressing question:
Why was CVL chosen when there was nothing to liquidate?
Possible reasons include:
- Ensuring employee claims could be processed via the Redundancy Payments Service;
- Disclaiming onerous property or contract obligations;
- Avoiding perceived risks of wrongful trading.
But in many cases, directors later report they weren’t made aware that other routes were available. That they felt pressured. That they didn’t fully understand the process they were paying for.
The Role of Accountants and Advisers
Accountants often act as the trusted first point of contact. Directors look to them not just for technical guidance but for reassurance and direction.
It’s essential, then, that accountants are able to:
- Recognise when advice from an insolvency practitioner may be incomplete or self-serving;
- Prepare their clients to ask the right questions;
- Ensure that directors understand they are not always obliged to “pay to fail.”
That’s why VAi was developed. It’s designed to level the playing field—giving directors, and their advisers, free and easy access to the information they need before entering into a formal process.
Want to Know More?
If you’re an accountant advising directors of distressed companies, VAi can help you support your clients with clarity, confidence and control.
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