Creditors Voluntary Liquidation CVL

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 process is the following:
• The members pass a Companies Act 2006 resolution to say they cannot continue normal business trading because of financial liabilities.
• Within 14 days of the resolution, a meeting of creditors must occur to discuss the liquidation.
• Notice of the special resolution for voluntary winding-up of the company must be published in the Gazette within 14 days of the general meeting. The company must also send a copy of the declaration and the special resolution to the Registrar within 15 days of the general meeting.
• Notice of this meeting must be made to creditors 7 days before it occurs.
• Company directors must prepare a state of affairs for consideration at the meeting, as well as appointing one of themselves to oversee and attend the meeting.
• A statement of affairs must be provided to the liquidator who is often also an insolvency practitioner.
• The liquidator must send a statement of affairs and Form 4.20 to the Registrar within 7 days of the creditors’ meeting.
• The liquidator must also send a statement, in duplicate, of receipts and payments for the first 12 months of liquidation. After that, statements must be sent every 6 months until the winding-up is complete.
• The liquidator will call in all the company’s assets and distribute them to its creditors. If anything is left over, the liquidator distributes it among the members of the company.
• At the end of the process the liquidator presents an account to a final meeting of creditors and members of the company. Within one week the liquidator must send the account to the Registrar and a return of the final meeting.
• Unless the court makes an order deferring the dissolution of the company, it is dissolved 3 months after the return and account are registered at Companies House.

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