A directors winding up is the process which a company goes through when it is insolvent and needs to be shut down. It is also known as a CVL or creditors voluntary arrangement.

A winding up is the last resort for a director who may have been struggling for some time to turn around the fortunes of the business. Analysis shows that many companies which have to close have been technically insolvent for a number of months. They have in the main been kept afloat by directors not taking their own benefits, or even worse, putting their own loans into the business to keep it going, whilst they hope for that one order which will make them enough money to clear everything off. Of course, that golden egg rarely arrives and the director's own resources soon run out.

With nowhere else to turn the directors are left with little option but to

call in the liquidator. A big concern for directors at this stage should be the question or wrongful trading. If the loses have increased as a result of this continued trading, the directors can be personally liable for those extra loses.

Of course it could all be so different, if the director had spoken to a professional advisor some months earlier, they would have cautioned him against putting that money into the insolvent business, and instead advised him that if the business was viable, to use that investment to buy out the potentially profitable elements from the company and re-start. This is known as a pre-pack sale.

With the 'business' as opposed to the limited company shell effectively saved the IP would then have closed down the insolvent company, having advised its creditors what we had done and why. If there is a dividend to pay, this will be paid after costs of the liquidation have been taken.

It is predicted that up to 1.5% of the company register may become insolvent this year. That could mean 40,000 companies face an insolvency issue of some sort. Many of these will be able to save something from the business if they take advice early enough.