What is a Creditors’ Voluntary Liquidation?

A Creditors Voluntary Liquidation (CVL) is a formal insolvency procedure which involves the directors of an insolvent company voluntarily choosing to bring their business to an end and wind the company up. The process is entered into on a voluntary basis when the company can no longer pay its debts as and when they fall due or it has more liabilities than assets.

It often follows the cumulation of many months of financial distress when the possibility of a successful turnaround has been extinguished.

Process

The directors will instruct a Licensed Insolvency Practitioner to assist them in drafting the necessary documentation to place the company into CVL.

Board meeting: The directors hold a meeting of the board of directors, or pass written resolution:

• To convene a general meeting of shareholders to wind up the company
• To appoint Liquidator(s);
• To nominate a director to prepare a statement of affair and
• To convene a decision of creditors to place the company into liquidation.

Statement of Affairs: The nominated directors will prepare a statement of affairs on behalf of the Company.

Company meeting: A shareholders meeting is held to pass an extraordinary or special resolution stating that the company cannot by reason of its liabilities continue to trade and it should be voluntarily wound up.  An ordinary resolution is also signed appointing an Licensed Insolvency Practitioners as Liquidator.  This can be the Licensed Insolvency Practitioner who assisted the directors in preparing the documents or an Insolvency Practitioner of the shareholders choice. The meeting doesn’t require shareholders to physically be there as the resolutions can be written.

Insolvency Practitioners Report: A report is prepared by the Licensed Insolvency Practitioner providing a brief trading history, extracts from the company’s recent accounts and a deficiency account, detailing financial movements and assumed financial movements between the date of the last accounts and the date of liquidation. This report and the statement of affairs must be made available to creditors the day before the date creditors are to vote on the liquidation resolutions (the decision date), at the latest.

Decision by the creditors: The day after the shareholders’ meeting where the company was wound up and a liquidator was nominated the company directors have seven days to deliver a notice to creditors, requesting their vote on the resolutions passed.  The decision on these resolutions should be no earlier than three days after the notice is delivered and no later than 14 days after the shareholders’ meeting.

Effective Date

The effective date of the liquidation is the date and time of the decision date or  23:59 on the decision date if deemed consent is chosen as the Qualifying Decision Procedure, unless a physical meeting has been requested.

Effect of a CVL

When a company enters into liquidation its assets are sold by the liquidator to repay creditors and the business closes down. The company name remains live on Companies House Register but its status switches to ‘Liquidation’.

Duties of the Liquidator

The liquidator will:

• Realise the assets of the company for the benefit of creditors;
• Investigate the cause of the company’s failure and submit a report to the Department of Trade and Industry on the conduct of the directors;
• Agree creditors’ claims and, if funds available, make a distribution and
• Act in the best interest of all creditors at all times

Conclusion if a CVL

Once all assets have been realised and any distributions made to creditors the Liquidator will seek his release.  Any liabilities which remain unpaid by the company will be written off, unless they were personally guaranteed.  Three months after the liquidation concludes the company is dissolved but details remain on Companies House Register for 20 years.

Advantages of a CVL

The Advantages of a CVL include:

• Outstanding debts are written off;
• Legal action is halted;
• Staff can claim redundancy pay;
• Leases can be cancelled;
• Relatively low costs involved and
• Avoid court processes.

Disadvantages of a CVL

There are disadvantages to a CVL.  These include but are not limited to:

• Accusations of wrongful trading;
• Personal liability for company debts;
• Liability for overdrawn directors’ current accounts;
• All business assets will be sold and
• All staff will be made redundant.

The directors will instruct a Licensed Insolvency Practitioner to assist them in drafting the necessary documentation to place the company into CVL.

Board meeting: The directors hold a meeting of the board of directors, or pass written resolution:

• To convene a general meeting of shareholders to wind up the company
• To appoint Liquidator(s);
• To nominate a director to prepare a statement of affair and
• To convene a decision of creditors to place the company into liquidation.

Statement of Affairs:The nominated directors will prepare a statement of affairs on behalf of the Company.

Company meeting:A shareholders meeting is held to pass an extraordinary or special resolution stating that the company cannot by reason of its liabilities continue to trade and it should be voluntarily wound up.  An ordinary resolution is also signed appointing an Licensed Insolvency Practitioners as Liquidator.  This can be the Licensed Insolvency Practitioner who assisted the directors in preparing the documents or an Insolvency Practitioner of the shareholders choice. The meeting doesn’t require shareholders to physically be there as the resolutions can be written.

Insolvency Practitioners Report:A report is prepared by the Licensed Insolvency Practitioner providing a brief trading history, extracts from the company’s recent accounts and a deficiency account, detailing financial movements and assumed financial movements between the date of the last accounts and the date of liquidation. This report and the statement of affairs must be made available to creditors the day before the date creditors are to vote on the liquidation resolutions (the decision date), at the latest.

Decision by the creditors: The day after the shareholders’ meeting where the company was wound up and a liquidator was nominated the company directors have seven days to deliver a notice to creditors, requesting their vote on the resolutions passed.  The decision on these