A Creditors Voluntary Liquidation (CVL) is a formal insolvency procedure used to close a company that has reached a position of insolvency. If your company’s debts have become unmanageable and pressure from creditors is unbearable, it can be overwhelming. If you have decided you want to effectively ‘shut up shop’ and put an end to the worry and sleepless nights, a Creditors Voluntary Liquidation (CVL) may be the solution to your company’s financial difficulties.
What is it and how can it help my company?
Creditors Voluntary Liquidation (CVL) is the most common form of liquidation in the UK. A company that decides to implement a CVL generally has little or no cash flow. This in turn makes it difficult to pay debts as and when they fall due. A CVL is usually the last resort for a company as it is insolvent and cannot continue trading.
As the name suggests, the process is a voluntary option for directors and shareholders. It brings an end to worries regarding company debts quickly and professionally. However, it should not be confused with Compulsory Liquidation. This is the process where one or more of the company’s creditors issue a winding up petition to the courts, effectively forcing the company into liquidation.
The decision to propose the company enter into CVL is initially made by the directors. However, it is the shareholders that have to pass the relevant resolutions. The directors will hold a quorate board meeting, which generally requires a minimum of two directors present. They vote to confirm that a CVL is the most appropriate route. The director(s), with the assistance of the proposed liquidator, call a meeting of the shareholders. This is to consider the resolutions to put the company into a CVL.
When the directors decide CVL is the best way forward, the company will generally cease trading immediately. It is imperative the company does not take on any more credit or incur further liabilities. At this stage, this could be seen as worsening the creditor’s position. If there are any assets, there should be a safeguard of these pending the appointment of a liquidator. These assets will be realised upon the liquidator’s appointment and after deduction of costs, any remaining funds are distributed to the company creditors in the order of priority, set out in insolvency legislation.
It may be possible for directors, shareholders or other company connected parties, i.e. employees, to acquire company assets at market value. They can then continue trading in the same line of work.
If you have any interest in purchasing the assets, you should advise the proposed liquidator and submit a formal offer. Assuming the offer is in line with market value, and there are no other higher offers, the sale will be complete.
Strict controls are in place with regards to the re-use of company trading names. However, if you require, we can give an explanation of this in further detail.
What are the advantages of CVL?
It is never pleasant when a company needs to ‘close its doors’. However, it can become apparent a company is no longer viable and cannot be rescued. In this case, it is often better for directors and creditors if a CVL commences as soon as possible.
- It gives directors an opportunity to deal with the company’s insolvent position quickly and professionally.
- It gives directors a clean break, allowing them to move on.
- By ceasing to trade the company upon the realisation of insolvency, the directors reduce the risk of wrongful trading.
- It enables creditors to submit their claims in a controlled manner.
- Liquidation does not affect the directors’ ability to be a director of another company, unless there is a subsequent disqualification order.
- Employees that are made redundant will still receive any redundancy payments due from the Redundancy Payments Office (subject to limitations).
- It can be possible for directors or shareholders to purchase company assets at market value and trade again in a similar line of business.
Creditors Voluntary Liquidation (CVL) procedure.
- Consider the Options
- A professional insolvency consultant from Wilson Field will run through the available options before any decisions are made. Discussions will take place about your company’s financial position and a summary of options available to you to work out a beneficial way forward.
These options will include but will not be limited to:
- Meet a Consultant
- After the initial discussion, if you wish to discuss your options in more detail, one of our insolvency consultants will arrange a face-to-face meeting. This will be at a location convenient for you. This consultation will be entirely free of charge and without obligation. During this meeting, we will review the company’s viability, history, forecasts, assets and liabilities, amongst other things. You may need to compile information for the meeting, but we will inform you of these documents beforehand.
- Formal Instruction
- Following the face to face meeting, if the conclusion of the best way forward for the company is CVL, you will formally engage the services of Wilson Field. The consultant will pass your case file to a licensed insolvency practitioner. The insolvency practitioner will act as the proposed liquidator. Wilson Field will become your creditors’ point of contact. Any letters or phone calls you receive from them should be directed to us so we may deal with them on the director’s behalf. This should hopefully alleviate any stress that you may have been experiencing due to creditor pressure.
- Arrangement of Creditor’s Meeting
- You will provide details of the company’s creditors, including banks, trade creditors, finance companies, employees etc. The insolvency practitioner will write to your company’s creditors providing them with details of the date, time and place of the creditor’s meeting. A section 98 meeting is another name for this meeting. Creditors must have at least 7 days’ notice (plus postage time) and shareholders 14 days’ notice. 7 days prior to the meeting, advertisement of it must be in the London Gazette.
- Collation of Information & Drafting of Directors Report and Statement of Affairs
- As part of the liquidation process, director(s) should prepare a report and statement of affairs to present at the creditors meeting. This is something Wilson Field will assist with. As such, the proposed liquidator and their team will need the relevant information to prepare this. The information required will vary case to case. However, there is an expectation of production of details regarding company’s assets, the likely value and recovery. The director(s) also need to provide a trading history of the company, outlining problems encountered and the company’s reasons for failure.
Please note: The instructed insolvency practitioner will arrange for an independent valuation of any assets.
There must be approval by director(s) of the report and statement of affairs, prior to presentation to members and creditors at subsequent meetings.
- Attending the Shareholders & Creditors meeting
- Two separate meetings take place. First, is a shareholders meeting where they consider resolutions to put the company into CVL and who to appoint as liquidator. To pass the resolutions, a minimum of 75% of shareholders must be present to consider and vote. A quorum must be present, if the company has two or more shareholders.
The creditors meeting normally takes place straight after the shareholders meeting. A director must attend both meetings and will act as chairman. However, the insolvency practitioner will assist and effectively ‘run’ the meeting with you. Creditors do not usually attend but if they do they will be given the opportunity to ask any questions. These may regard the failure of the business and/or the director’s conduct.
- Creditors Vote
- After the presentation of the report and statement of affairs, a vote is cast with regards to liquidator appointment. The appointment of the liquidator is by vote of a simple majority of creditors (over 50%) by value of claims. It is possible for creditors who do not want to attend the meeting to vote. They complete a form and return it to the proposed liquidator’s office before the meeting. They can appoint another individual to attend on their behalf, known as voting by proxy.
- Appointment of Liquidator & Liquidation Commences
- Once the appointment of the liquidator has been ratified by the creditors, the liquidator has many duties to carry out.
These include, but not limited to, the following:
- Realisation of company assets
- Liaising with creditors regarding the progress of the liquidation and dividend prospects
- Dealing with any employee claims
- Carry out statutory investigations into the company’s affairs and conduct of the director(s)
- Submitting a conduct report to the insolvency service outlining their findings
- With regards to available funds, an agreement of claims is made for a distribution to creditors
- Whilst a CVL can seem a drastic measure for your company, directors of an insolvent business must take action immediately.
Particularly, once you become aware the company is unable to pay its debts as and when they fall due. Failure to do so could put directors of an in a situation where an action for wrongful trading may later be taken against them. This could put your personal assets at risk. Early action by directors can prevent this.
Wilson Field offer a fast and efficient service with nationwide coverage from a network of regional offices. The arrangement of a free consultation can be at a time and location most convenient to you.
If you think a CVL may be right for your company, get in touch today. To arrange a free confidential consultation with no obligation.