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A Creditors Voluntary Liquidation (CVL) is the most common liquidation process for companies that are experiencing financial difficulty from which they can’t recover.

If a company cannot pay its creditors (debts), doesn’t have enough funds to continue to operate, and can’t benefit from a Turnaround & Rescue or administration procedure, the company can be placed into liquidation.

What is a Creditors Voluntary Liquidation (CVL)

The Importance of Timely Action in CVL

Directors must act responsibly by acknowledging when there is no feasible way to avoid insolvent liquidation.

It’s crucial to cease trading immediately to avoid wrongful trading, which could result in personal liability for the directors.

How Much Does CVL Cost?

The cost of a CVL can vary based on various factors, including the company’s debt levels, the number of shareholders, and the value of remaining assets.

It’s essential to differentiate between licensed and unlicensed advisors during this process to avoid unnecessary expenses and delays.

For a full article on the cost of liquidation see here.

Benefits of Opting for a CVL

Opting for a CVL allows for an orderly closure of the business, addressing all outstanding debts by maximising asset value to benefit creditors.

While not all debts may be fully recovered, the process aims to resolve the majority of the company’s financial obligations.

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The CVL Process Explained

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. Liquidation Begins

The general meeting of shareholders and the decisions of the relevant creditors normally happen on the same day. 75% of shareholders must agree to liquidation if the company is to be wound up.

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.

4. 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.

Seeking Professional Advice

If you’re a business owner facing financial challenges and considering a CVL, it’s crucial to seek expert guidance. Contact Business Helpline at 0800 088 2142 for professional advice tailored to your situation.

For more information and FAQs on Creditors Voluntary Liquidations, click here.

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