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What is a Creditors’ Voluntary Liquidation (CVL)?

 A CVL is instigated by the company when the Directors become aware that the company cannot pay its debts when they fall due, rendering it insolvent. It is important at this point that the company ceases to trade, this is so the assets are protected and that the debt does not continue to increase. The Directors then appoint a Liquidator who must be an authorised Insolvency Practitioner. Once they do this the Directors powers cease and the liquidator takes control of the company. The remaining assets are then sold and the proceeds are then distributed to the company’s creditors. The Insolvency Practitioner ensures that the creditors’ best interests are considered. At the end of the Liquidation, the company is dissolved.

Why should you take action immediately?

It is imperative that the Directors identify Insolvency at the earlier possible date as continuing to trade whilst insolvent has dire consequences especially if the company debt increases. It can, for example, cause Directors to become personally liable, at a later date, for claims brought against them by an administrator or liquidator. The other aspect to consider is how far along the process the creditors are as they could force the company into liquidation and an alternative Liquidator appointed.

What is the process for entering into a CVL?

The process is managed by an authorised Insolvency Practitioner who, with the assistance of the Directors, invoke an orderly wind down of the company.

The shareholders of the company must pass a resolution where 75% of the shareholders, by value of shares, agree to liquidate the company.  A Creditors meeting is then held within 14 days of the passing of the resolution. They creditors must be informed of the meeting at least 7 days before it happens. The date and time of the meeting is also advertised in ‘The Gazette’. At the meeting, the company’s creditors can suggest an alternative liquidator than the one put forward by the company. A statement of affairs must also be presented at this meeting where the creditors can question the Directors about the failure of the business.

Once the company has entered Liquidation, the Insolvency Practitioner will deal with all creditor claims and take control of the company and its assets. The assets are sold and the proceeds are distributed amongst the company’s creditors.

Once a company has entered into a CVL the Liquidator has to submit a report on the conduct of the Directors to the Department of Business, Innovation and Skills (BIS) within six months.

Advantages

• Relatively quick way of closing down your business
• Outstanding debts are written off
• Legal action is halted
• Staff can claim redundancy pay
• Relatively low costs involved
• Avoid court processes

Disadvantages

• The company will cease to trade
• Asset values will decrease
• Any personal guarantees will be called in

We will endure that the liquidation of your business is as straightforward as possible, do not hesitate in contacting us today for free advice.

How does Liquidation effect Directors?

 When a Director opens a Limited company it is ‘Limited liability’ which means that the debt is that of the company not the Director. When the company liquidates the debt is dealt with by the liquidator and remains within the liquidation. This then enables the Director to either continue on in the same line of business or to make a new start doing something totally different.

As it is the company that is liquidated and not the Director, the personal credit history of the Director is not effected. This may change if there are unpaid personal guarantees following the liquidation.

Can I open a new business?

 The Director is then free to set up a new company which could purchase the assets of the old company from the liquidator. This usually occurs as the new company will need the tools or clients of the old company and could provide the best value to the liquidator.

The main restriction of the Director of the new company is that the new name cannot be the same or something that sounds similar to the old company. This is to prevent suppliers and customers believing that they are still dealing with the old company.

For more information on the options open to a director who is about to liquidate their company please contact us on 0800 0465 600.