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Creditors Voluntary Liquidation

Creditors Voluntary Liquidation

What is a Creditors Voluntary Liquidation?

A Creditors Voluntary Liquidation (CVL) is the most common liquidation process for companies that are experiencing financial difficulty from which they cannot recover. If a company cannot pay its creditors (debts), doesn’t have enough funds to continue to operate, and is not able to benefit from a Turnaround & Rescue or administration procedure, the company can be placed into liquidation.

Once it is clear that there is no reasonable prospect of a company avoiding insolvent liquidation, company directors must take steps to ensure that the company is not trading whilst insolvent. In the event that a company continues to trade whilst insolvent, this is known as Wrongful Trading, which can result in personal liability for the directors.

How much does a Creditors Voluntary Liquidation cost?

The fees can vary depending on the circumstances of the business. These circumstances could be related to the level of its debt, the number of shareholders that it has, or the cost of the assets that it has left. For a more in depth look at the cost of a Creditors Voluntary Liquidation have a read of this article.

It’s important when getting advice to understand the difference between licensed and unlicensed advisors. Unlicensed advisors will act as an unnecessary middle-man between you and a licensed practitioner. This will add unnecessary money and time to the process.

How should directors act in this situation?

Directors should not look to obtain any further credit when their company is insolvent. They should also be cautious when it comes to paying creditors back if they do not have the full amount required to pay everybody.

Appearing to favour one creditor over the other is not a good look for a business director because you could be classed as making a preferential payment. That could make you personally liable for any liquidation that follows. Any assets or money that belongs to the business should not be sold or moved out of the company at any cost, before this procedure has taken place.

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What happens if I trade whilst insolvent?

If you know you’re insolvent and you continue to trade then you could find yourself personally liable for trading during such a period. You could seek guidance from a licensed Insolvency Practitioner and they will be able to talk to you about the available options. It’s important to ensure that you remain compliant in your duties as director of the insolvent company.

How can a CVL benefit my business?

A Creditors Voluntary Liquidation closes a business and deals with all outstanding company debts through the process. The value of assets will be maximised to provide a substantial return to creditors and, while not all amounts will be able to be returned to creditors, the majority of the debt should be dealt with.

How do I place my company into a CVL?

A CVL can only be created under the assistance of a licensed Insolvency Practitioner (IP). An IP will be able to help you with good advice that you need to sort out your financial situation.

A Company Voluntary Liquidation (CVL) must be overseen by a licensed Insolvency Practitioner. These professionals provide essential guidance and practical advice for managing a distressed company. It’s crucial to consult an Insolvency Practitioner at the first signs of financial trouble.

They can discuss various solutions, including potential rescue and restructuring strategies such as Administration or a Company Voluntary Arrangement (CVA), tailored to your company’s specific needs.

Engaging with an Insolvency Practitioner early can significantly impact the available options and outcomes for your business.

How long does a CVL take?

It takes 14 days to put a company into a Creditors Voluntary Liquidation, following the date it has been agreed. If 90% of shareholders agree to a short notice, liquidation can happen in half of that time (7 days). 7 days is the minimum statutory notice period to creditors.

However, it can take anywhere from 6 months to 2 years for the liquidation to be completed. This all depends on the complexities of the case and the size of the company.

    How much money does your company owe?

    Less than £20,000

    £20,000 to £50,000

    £50,000 to £100,000

    More than £100,000

    How many creditors are there?

    5 or more

    less than 5

    Can your company currently pay its debts, commitments and suppliers?

    Yes

    No

    Types of debt outstanding

    Bounce Back Loan

    HMRC

    Suppliers

    Bank Borrowing

    Staff Wages

    Other Liabilities

    Would you like to check if you can claim redundancy?

    Yes

    No

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    What is the process for a Creditors Voluntary Liquidation?

    1. Meeting of Board Directors and Sole Director

    Once the directors have met and discussed the situation with a Licenced Insolvency Practitioner, they will have to meet and work out what is best for the good of the business – sorting out the finer details of what is going to take place.

    2. Shareholder and Creditor Communication

    Shareholders and creditors will both be affected by decisions that are made in the previous point.

    Any decisions on the future of the business are of course going to affect its investors; they will also affect creditors, who will be easier to see how and when they will start to be repaid.

    3. Shareholders Meeting

    At this meeting, the Director will present a Statement of Affairs which is prepared by the liquidator and signed by the director. This document gives a summary of the assets and liabilities of the company.

    At this meeting, the shareholders may be in attendance or have agreed or disagreed with the winding up proposal.

    There is no longer a requirement to hold a creditors meeting in person, as per the pandemic, unless it is requested by 10% of creditors in value or number, or simply by 10 creditors.

    Liquidation would ordinarily commence at 23:59 on the Decision Date if the appointment of liquidators was approved. This can be done remotely with directors.

    For this resolution to be passed it requires 75% of the shareholders to vote in favour of the proposal.

    4. The Creditors Meeting

    Following on from the Shareholders meeting there is an opportunity for creditors to ask questions and/or express any concerns they may have.

    A report will be prepared after the shareholders meeting. At this point, creditors will be able to discuss the trading activities of the company.

    An Insolvency Practitioner will also attend this meeting and be officially appointed at the conclusion of the meeting.

    5. Process of Liquidation

    The Insolvency Practitioner will continue to communicate with creditors during the liquidation of the company, resolving any issues regarding creditor claims and taking the necessary action to fix them.

    They would have to realise the company assets so that they can be used and distributed across outstanding creditors.

    Assets will be independently valued, marketed, and sold to gain capital. A director of the insolvent company could purchase some of these company assets but they could only do so if negotiated through the IP.

    There is a set order of priority of whose needs are to be met first, as noted in the Insolvency Act 1986.

    What is the difference between a CVL and a CVA?

    The key difference between a Creditors Voluntary Liquidation and a Company Voluntary Arrangement (CVA) is that a company is liquidated and no longer trades in a CVL solution. A company will continue to trade within a CVA.

    A CVA is only possible if your company looks like being profitable in the future. If it does not, a CVL might be the better route to go down.

    Can creditors stop my CVL?

    It is very unlikely that creditors will attempt to pull you out of the CVL as it is underway. After all, the CVL has to be agreed by creditors in the first place and those creditors will only agree to it if they see it as the best method of getting their money back.

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    What is the difference between a CVL and an MVL?

    A CVL comes into fruition when an insolvent company enters into a voluntary liquidation. This is the opposite of an Members Voluntary Liquidation (MVL).

    The directors and/or shareholders of the company decide to close their business in both of these options, however, the proceeds of the liquidation go to creditors within a CVL. In an MVL, they go to the members.

    Can you turn an MVL into a CVL?

    The liquidator must ensure that the company remains solvent throughout an MVL procedure. It’s possible that after the MVL is advertised publicly, additional creditors may come forward and submit claims against the company, turning it into a CVL.

    Alternatively, the valuation of contingent liabilities may reveal that prospective debts will push the company into insolvency. Whatever the cause, if the company does become insolvent or is found to be insolvent by the liquidator, a creditors’ meeting will be held and the procedure could turn into a CVL.

    The liquidator has to make sure that the company remains solvent throughout the MVL process. It is possible that more creditors could come forward when they that the MVL is being advertised in the Gazette. This can turn the MVL into a CVL.

    A creditors meeting will be held if the company does end up going insolvent, or is found to be insolvent by a liquidator, and this could force the MVL into a CVL.

    Fines and penalties can be brought into the equation if creditors of the company swear a false Declaration of Solvency to enter into an MVL. This can include stopping people from acting as directors of a UK limited company for up to 15 years. If it is a case of international fraud, imprisonment could be a possibility for the perpetrator.

    Call us

    If you feel a Creditors Voluntary Liquidation is the right thing for your company, then get in touch with us. We can discuss all the available options available to you. Call one of our compassionate experts on 0800 088 2142.

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      Why should I go into a CVL?

      Can you reverse a CVL?

      What's the difference between an MVL and CVL?

      A CVL is a voluntary liquidation process that is there to bring an end to an insolvent company. It is worth noting, though, that liquidation is not only for insolvent businesses.

      A Members Voluntary Liquidation (MVL) is for solvent companies that want to bring their business to a close. Putting a business into an MCL allows a company to extract proceeds in a tax-efficient and cost-effective way. It also allows the business to be wound down in a calm manner.

      You must sign a declaration of solvency that demonstrates that the company is solvent and able to pay all of its outstanding creditors, if you want to go into an MVL solution. Lying in order to sign a declaration of insolvency is a very serious matter and you can get into big trouble.

      With that in mind, it’s imperative that you talk to a fully licensed insolvency practitioner before you jump into any liquidation solution. They will be able to offer the best advice for you and your company, ensuring that you don’t make any life-changing mistakes when trying to find a solution for your situation.

      What happens after a CVL?

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