What is Creditors Voluntary Liquidation?
A Creditors Voluntary Liquidation (CVL) is a formal insolvency process initiated by directors when a company is unable to meet its financial obligations (insolvent) and cannot continue trading.
Unlike Compulsory Liquidation, CVLs are voluntary decisions taken by the directors in the best interests of the company and its stakeholders.
Understanding The Process
Board Meeting Of Directors
Once the advice from a licensed Insolvency Practitioner (IP) has been to undertake a CVL, a meeting of the board of directors is held, resolving to convene a meeting of shareholders and creditors to place the company into liquidation.
Following this meeting, an IP is formally instructed.
Notice to Shareholders and Creditors
Shareholders and creditors will be notified of their meeting date/time and presented with a Statement Of Affairs for the company. A report is also prepared giving an overview of the company’s trading history and its recent accounts amongst other things.
Creditors / Shareholder Meeting
A creditors meeting will take place, usually following a shareholder meeting. Creditors ask the director questions about the demise of the business and then vote on the resolutions and whether to retain the appointed IP or choose their own.
If approved by the majority (by the value of debt) the company is placed into Liquidation.
The Liquidation
All assets are independently valued, marketed and sold to enable a dividend to be paid to creditors. The IPs will deal with all creditor claims, employee claims, collecting book debt and issuing reports to government agencies.
Distribution To Creditors
Once all monies have been realised, (this could include chasing directors for personal assets/money) a distribution will be made to creditors in their priority order. Fixed charge holders, preferential creditors, HMRC, secured creditors with a floating charge, and finally unsecured creditors.
Company Dissolved
Once the insolvency process has finished, the company is officially dissolved at Companies House and will no longer exist. Any remaining debts are written off unless a director has provided a personal guarantee in which case they will need to deal with them personally.
The Benefits
Advantages of a Creditors Voluntary Liquidation
Control
Directors can choose the Insolvency Practitioner they would like to work with and choose when to engage them.
Speed
A CVL is faster than a court-ordered liquidation and saves the company from incurring further unnecessary costs. Early action can often maximise asset realisation and creditor return.
Relief
Once the Insolvency Practitioner has been engaged the director ceases to be an officer of the company. Therefore they no longer need to deal with creditors and the affairs of the business. A big relief for some after periods of sustained pressure.
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