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Creditors’ Voluntary Liquidation (CVL) is an insolvency process for companies whose financial situation has declined to a point of no return. When their debts become unaffordable, and continuing to trade is no longer viable, this type of liquidation may be performed in order to close the company and distribute its funds amongst creditors.
Here we take a look at the most common questions surrounding CVL.
A CVL is a voluntary liquidation process for directors and shareholders of insolvent companies. It allows a company to close its doors, and convert assets into cash to be distributed amongst its creditors. The process is carried out by a licenced insolvency practitioner, such as ourselves, who oversees the closure of the company, and the distribution of funds. Once the CVL is complete, the company ceases to exist, and any outstanding debt dissolves with it.
In order for a CVL to be carried out, 75% of a company’s shareholders must agree to initiate the process. An initial meeting will be held with shareholders, and if fewer than 75% give their approval, the process cannot go ahead.
A CVL is a voluntary insolvency procedure carried out when a company’s directors/shareholders recognise that the state of insolvency/financial decline is beyond reasonable repair. Choosing to pursue a CVL protects the company from facing compulsory liquidation through means of a winding-up petition, in which they could face very little control/preparation over their company’s closure.
Unfortunately, once a CVL is carried out, employees of the company are made redundant. If there are no funds within the company with which to cover redundancy pay, employees may apply through the National Insurance Fund, as long as they meet the criteria.
Find out more about eligibility for redundancy pay here
As a director, a CVL gives you breathing space from creditor pressure while the liquidation process is carried out. Due to the company ceasing trading, your position as an employee will also terminate. As long as you have received a weekly or monthly wage from your company, you are also entitled to redundancy pay through the National Insurance Fund.
Consequences of CVLs for directors
Placing your company into insolvency procedures such as CVL will not affect your personal credit rating, or financial situation, as the limited company is classed as a separate entity to its directors.
A limited company and its directors are two separate entities, meaning that you are protected from incurring liability for your company’s debts, so long as a personal guarantee has not been given. However, if you are found to have traded while your company was insolvent, and have thus worsened the position of your creditors, you may be found guilty of malpractice as a director. This can lead to disqualification from holding directorship of any future company for a term of up to 15 years, and may see you held personally liable for your company’s debt. Entering the process of a CVL as soon as possible protects directors from being held accountable for their company’s demise, and can save them from incurring any liability for its debts.
If I close a limited company, will I be personally liable for its debt?
A CVL is a process for companies in a state of insolvency, meaning they can no longer afford to meet their liabilities. If the company’s financial situation is declining, creditor pressure is increasing, and the business model provides no realistic vision for improvement, then a CVL may be necessary. Exploring a CVL as soon as this is recognised is crucial, as it is the responsibility of company directors to act in the best interest of creditors to avoid wrongful trading allegations.
The process of a CVL brings with it clear advantages, including:
– Reducing the risk of wrongful trading, and thus protecting directors from incurring liability for company debts.
– It enables creditors to submit any claims in an organised, and straightforward fashion.
– Employees made redundant during the liquidation will still receive payment through the Redundancy Payments Office (subject to limitations).
– It gives directors more control over the liquidation process, as opposed to compulsory liquidation which would see liquidators appointed by the company’s creditors.
– Legal action from creditors is halted once the process of a CVL commences. As long as no personal liabilities have been signed against debt, creditors will no longer be able to take action against you.
– Once the CVL has been finalised, any outstanding debt attached to the company ceases to exist along with it.
There is no ‘one size fits all’ answer to this question, as the size of company, number of creditors, and level of debt can all affect the time that the liquidation may take. Your company can be placed into the process of a CVL in as little as 14 days from the point of the initial shareholders’ meeting. The actual procedure of the liquidation (realisation of assets and distribution of funds to creditors) may take much longer, sometimes over a year, depending on the size of the company and its situation.
The cost of a Creditors’ Voluntary Liquidation can vary depending on your company’s situation, but is usually surprisingly inexpensive. Our costs for carrying out the liquidation are usually covered by funds raised through the sale of assets. If these funds are insufficient in your situation, but you still wish to pursue CVL, you may choose to raise these funds yourself. These funds may also be raised through deduction from the directors’ redundancy payment. To find out more about pricing for CVL, and how it may work for your situation, get in touch today for a free consultation with one of our experienced advisors.
Opening a company with a similar/identical name to one that has faced liquidation through a CVL is prohibited by Section 216 of the Insolvency Act. This may be possible through certain legal processes, but should not be practised without the correct approval.
Yes – it is entirely possible for you to become, or remain as a director of a separate company throughout and after the process of your company facing CVL. This is, however, subject to there being no disqualifications enforced due to findings of wrongful trading throughout the process of CVL.
A creditors’ voluntary liquidation (CVL) is a procedure managed by a licensed insolvency practitioner, which sees the closure of a company and the sale of its assets. When a company reaches a point of financial decline that is deemed beyond repair, a CVL provides directors with protection from wrongful trading, and ensures that the best achievable return to creditors is reached.
How we can help
If your company’s financial situation has declined, and creditor pressure is increasing, we can help. Our team of licensed and regulated insolvency professionals have the knowledge and experience to provide the support needed in your situation. We offer a free consultation with one of our insolvency advisors to discuss your situation, and work out the best way forward. It is crucial that you act as soon as possible if you believe your company is insolvent, as trading in this state may worsen the position of creditors, and lead to consequences for you as a director. Pursuing a process such as Creditors’ Voluntary Liquidation as soon as possible can reduce the risk of such consequences. Get in touch today.