Creditors Voluntary Liquidation
Creditors Voluntary Liquidation occurs when a business’s directors decide to put the business into liquidation because it is insolvent. Although it is voluntary it is often the result of pressure from external parties such as creditors or professional advisors.
A CVL is used when a company is insolvent and cannot pay its debts. This is preceded with a special resolution that is passed by a company declaring that it cannot continue with business operations due to insolvency and the only option available is to ‘wind up’.
The whole process can sound complicated but if you are working with the right insolvency practitioner they can make voluntary liquidation a more manageable experience.
What happens during a Creditors Voluntary Liquidation?
The decision to undertake a CVL comes when the directors and/or the shareholders of a failing company feel that they are unable to honour their debts to creditors. Although a CVL is a process that requires time and attention, sometimes it is the best course of action for a business that is no longer viable.
The first step of a CVL involves the directors of a company calling a meeting to clarify to shareholders that the company can no longer trade due to the burden of its debts. The creditors and shareholders then attend a meeting (typically chaired by the director of the business) to obtain a collective agreement or resolution to begin the liquidation process. This meeting with creditors must be assembled within 15 days of the decision made to dissolve the company, and is generally held directly after the shareholders meeting. It is required that 75% of the shareholders agree to the appointment of a liquidator.
A liquidation committee is then formed which consists of at least three and no more than five creditors as well as representatives of the company, who will assist the liquidator with the remainder of the process.
Before deciding to undertake this process, it is recommended to discuss the pros and cons of the procedure with an insolvency practitioner as it is a complex issue.
If you are considering a CVL or want more details on the liquidation process please us for for advice as soon as possible