Creditors Voluntary Liquidation (CVL) FAQs
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.
Voluntary Liquidation
Compulsory Liquidation
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.
In summary
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.
Case Studies
Derwent Castings Limited
Kelly Burton • Metals • Creditors Voluntary Liquidation (CVL)
Unsecured creditors owed money by a Derbyshire manufacturing company which went into liquidation are to receive a higher than the expected dividend of 60p in the pound.
A total in excess of £128,000 is due to be distributed to unsecured creditors of Whatstandwell-based Derwent Castings Limited, whose claims totalled over £192,000.
The company, whose roots date back to the 1940s, had traded profitably for a number of years but in late 2013 / early 2014 saw the cancellation of its largest sales contract which represented 70 per cent of its turnover.
Bosses at the company, which employed 16 staff including three directors, struggled to attract replacement business and had to drop prices. Further business was lost as a result of foreign competition.
Sheffield’s insolvency specialist Wilson Field was called in as liquidator and worked with the creditors’ committee of Derwent Castings Limited to secure the positive dividend.
Andy Wood, associate director and insolvency practitioner at Wilson Field said:
“Dividends for insolvent companies are generally low, or nothing, for a variety of reasons – cost of staff redundancies, difficulty collecting outstanding invoices, selling assets in a forced sale situation, selling specialist assets which have limited appeal to purchasers, deteriorating or perishable assets, as well as other costs involved.
“However, thanks to a very positive relationship with the creditors committee, I am delighted to return a healthy dividend to the unsecured creditors in the region of 60p in the pound.
“The supply chain is often greatly affected by a liquidation and in this case we have been able to help creditors.”
Derwent Castings Limited was incorporated in August 2002 and specialised in iron casting from the five-acre Derwent Foundry site at Whatstandwell near Matlock.
However, the iron founding operation at Derwent Foundry was first introduced back in 1946 by Wragg & Hawksley which produced cast iron pipes for the water industry.
In 1950 the foundry was acquired by WH Davis & Sons Ltd to supply castings for their railway wagon building business. Following a management buy out in 1984, the company was renamed Derwent Foundry Ltd and following its closure in July 2002, was bought by its present owners and renamed Derwent Castings Ltd.
Amongst jobs carried out on site were moulding using loose pattern and modern air setting (boxless) sand systems; metals work using the latest in electric induction melting producing a wide range of grey, SG and alloy irons; an independent Namas approved test laboratory, finishing, pattern making and machining facilities.
Statestrong Limited
Kelly Burton • Manufacturing • Administration, Creditors Voluntary Liquidation (CVL)
Insolvency experts Wilson Field has helped turnaround the fortunes of a loss-making manufacturing company in Lancashire providing a new future for its 80 employees.
Businessman Russell Blaikie acquired the struggling 40-year-old Statestrong Limited, headquartered in Lytham St Annes, through a pre-pack sale and has been able to help the company immediately utilising his expertise in manufacturing and management.
Arrangements for the purchase of Statestrong’s business and assets were negotiated by Sheffield business specialists Wilson Field who affected the sale shortly after being appointed.
The company, which manufactures and supplies aerosol and liquid products for use in health and beauty, household, automotive and industry globally, posted sales of £12m last financial year, but had suffered pressure from creditors with outstanding arrears.
The total value of the deal is undisclosed but includes the business and the assets of the company based on Boundary Road in Lytham St Annes and Tarporley in Cheshire, which will now trade as Statestrong Products Limited.
Mr Blaikie said:
“Transactions of this nature are sensitive and require careful handling. The team at Wilson Field provided exactly the right professional approach.”
Wilson Field’s insolvency practitioners Kelly Burton and Joanne Wright worked closely with Mr Blaikie along with senior corporate case administrator Gareth Kinneavy.
Kelly Burton, said:
“The company had a wealth of expertise but was straddled with financial liabilities which ultimately made its future questionable. Looking forward, a previously distressed business now has a viable future.”
M J Squire Limited
Kelly Burton • Construction & Engineering • Creditors Voluntary Liquidation (CVL)
A bespoke joiners and shop fitters in Sheffield, M J Squire Limited, had been in its trade for more than 30 years.
However, recently it has been forced to close due to the downturn in the construction and retail industry.
The company was located at Orgeave Close in Sheffield, after working for many household names over the years including House of Fraser, Levi’s, Austin Reed and Tommy Hilfiger.
Until 2014, it had been a profitable company but over the past couple of years, it had been unable to secure profitable contracts.
February 10th, 2016 saw the appointment of Wilson Field’s Andy Wood and Robert Dymond as liquidators. This development for the company came as a result of suffering cash flow problems.
Operations at M J Squire Limited have now ceased and regrettably, all nine roles within the company were made redundant.
Andy Wood, insolvency practitioner from Wilson Field, spoke about his work on this case.
“Declining sales at M J Squires significantly impacted cash flow and the business’ ability to meet its liabilities. In the face of tough market conditions, the director has taken the difficult decision not to continue trading. The business has closed and the assets are being sold.”
“It is very sad to see this well-known local business cease to trade after over 30 years. The downturn in the retail sector has hit this business hard.”
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