Creditors' Voluntary Liquidations (CVLs)

A Creditors’ Voluntary Liquidation, or CVL, is appropriate when a company is no longer viable and cannot overcome its financial difficulties. It represents the end of the company and is the procedure used to wind up its affairs.

Why choose a CVL?

Voluntarily instigating a CVL, rather than letting affairs get to a point where a compulsory liquidation is forced by a winding up order, allows the directors to retain more control of proceedings.

The process requires the appointment of an Insolvency Practitioner to act as the company’s Liquidator. The Liquidator has various powers available to them to be able to wrap up the company’s activities and previous dealings.

The CVL Process

The company is insolvent satisfying the cashflow and/or balance sheet tests

Directors Hold a Board Meeting to Resolve to Place the Company into Liquidation and Nominate their choice of Liquidator

The Directors instruct an Insolvency Practitioner to advise if this is the correct regime and assist with the necessary paperwork. The Directors hold a Board Meeting to resolve to place the company into CVL and nominate their choice of Liquidator. The Board Meeting will also resolve to convene a meeting of the company’s members to seek the appropriate winding up resolutions.

Notice of the proposed Liquidation is sent to Creditors and Members

The company’s articles will state the notice period required to be given to members, however the meeting can be held at shorter notice if members consent. The creditors are provided with 3 business days’ notice for the decision on the appointment of the Liquidator

Creditors are Provided with a Statement of Affairs

The creditors will receive a report detailing events leading to the board meeting and a statement of affairs showing the company’s present financial position. The nominated Liquidator assists the Directors to prepare these.

Hold a Members’ Meeting

At this meeting they will be asked to pass a resolution placing the company into Liquidation and to appoint a Liquidator.

If there are no objections

The Choice of Liquidator is Ratified

If the creditors raise no objections to the members’ choice of Liquidator, the appointment is ratified.

Physical meeting requested

A Meeting is Needed to Decide Various Matters including Seeking an Alternative Liquidator

The creditors may instead ask for a physical meeting to be convened. At that meeting they may be able to seek to replace the nominated Liquidator with their own choice. Whether or not the creditors can seek a physical meeting and/or have their own choice of Liquidator is determined by statutory rules.

FAQs

What happens when a company is placed into Liquidation?

The company almost always ceases to trade (if it has not done so already). Control of its affairs passes to the Liquidator, who has various statutory powers enabling them to wind it down.

What happens with the Company’s assets?

The Liquidator will sell the Company’s assets for the best value achievable in the circumstances. They will instruct agents to advise upon value and achieve the best price.

What happens to the money that the Liquidator recovers?

All funds retrieved will be paid in accordance with an order of priorities. These are the costs of the Liquidation, the secured/preferential creditors, and then the unsecured creditors.

What happens to the company’s employees?

Almost always, all employees will be made redundant. They are able to claim redundancy pay and other entitlements through the National Insurance Fund. The Liquidator will assist with submitting these claims. Should the Liquidator be able to conclude a sale of the business on a going concern basis, it is possible for employees to be transferred to the purchasing entity.

What other duties does a Liquidator have?

The Liquidator also has a duty to investigate the company’s prior affairs. He has to provide a report to the Insolvency Service detailing his findings. The Insolvency Service will then consider Disqualification proceedings. The Liquidator has the power to seek recovery of assets from parties to certain transactions prior to Liquidation.

How quickly should Directors act?

Very. When the Liquidator prepares their report to the Insolvency Service, they will be considering how quickly the Directors acted in obtaining advice. If the Directors knowingly traded while insolvent, they may be open to allegations of wrongful trading.

Can the Directors of a company in Liquidation purchase its assets?

Yes. Directors (or shareholders) can purchase the company’s assets provided it is for market value and is the best outcome for creditors. Any offer received should be considered the best reasonably achievable by an independent valuation agent.  The Directors can trade again in the same or similar line of business, although they must meet certain conditions if they want to trade with the same or similar name.

How long does a Liquidation last?

There is no set time limit for a Liquidation to end; 12 months may be long enough, but there may be various reasons for it to take longer. These may range from there being assets still to sell or distributions to creditors to be made.

How does a Liquidation end and what happens when it does?

The Liquidation ends when all issues relating to the winding up of the company’s affairs have been dealt with. The Liquidator will send his final report to the creditors. Following a period of 8 weeks, the final report will be submitted to Companies House and usually 3 months later the company will be dissolved.

Benefits of using us

SFP is an Award winning Insolvency company that provides expert assistance in Turnaround and Restructuring services.

Choosing the right practitioner from the start will have major implications on any case and here at SFP we will take the time and effort to look into your business accordingly.

Having worked with a large number of clients over the last 18 years, we pride ourselves on being a trusted partner to UK businesses who are looking to survive in what is becoming an ever-increasingly challenging business economy.

Get in touch with one of our experts and they will:

  • Listen to you in confidence about the challenges you currently face
  • Analyse your business finances to realise your current scenario
  • Help you understand available restructuring options
  • Recommend, define and agree the way forward
  • Support you through all processes as a result of your taken actions

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