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 CVL 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.
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 can a CVL benefit my business?
A CVL 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.
What happens in a CVL?
- 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.
- 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.
- Liquidation Begins
The general meeting of shareholders and the decisions of the relevant creditors will usually 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.
- 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.
How to get in touch with us
If you’re a business owner and you’re not sure where to turn with your financial predicament, contact the good people at Business Helpline. They can guide you down the right path for a CVL. Call 0800 088 2142.
Click on the link for more FAQs on Creditors Voluntary Liquidations.
