(CVL) Creditors Voluntary Liquidation is a process initiated by the directors of a company when it is insolvent and unable to meet its debts. This decision is taken voluntarily to wind up the company’s affairs and pay off its debts to the extent possible. CVL is a step towards ensuring that the interests of creditors are considered and addressed during the liquidation process. Understanding this procedure and its key factors is crucial for directors considering this route, as well as for creditors involved. Here’s a comprehensive look into the CVL process and the important aspects to consider, along with insights on seeking professional company liquidation advice.
Step-by-Step Overview of the CVL Process
1. Decision to Liquidate:
The process begins with the company’s directors recognizing that the business is insolvent and cannot continue operating due to its liabilities exceeding its assets or its inability to pay debts as they fall due.
2. Consultation with an Insolvency Practitioner:
Directors should seek professional company liquidation advice from a licensed insolvency practitioner (IP). The IP will assess the company’s financial situation and advise whether CVL is the most appropriate course of action.
3. Shareholders’ Meeting:
If proceeding with CVL, the directors will call a meeting of shareholders to pass a resolution for the company’s liquidation. A 75% majority is required for the resolution to pass.
4. Creditors’ Meeting:
Subsequently, a meeting with the company’s creditors is held. During this meeting, creditors are informed about the company’s financial situation, and the liquidator (usually the IP consulted earlier) is appointed.
5. Liquidation Process:
The appointed liquidator takes control of the company, sells its assets, and distributes the proceeds among the creditors in a specific order of priority. The liquidator also investigates the company’s affairs and the conduct of its directors.
6. Dissolution of the Company:
Once the liquidation process is complete, the company is formally dissolved, meaning it ceases to exist as a legal entity.
Key Factors to Consider
1. Directors’ Duties and Responsibilities:
Directors must act in the creditors’ best interests once they know the company is insolvent. Failure to do so could lead to accusations of wrongful trading.
2. Impact on Creditors:
CVL aims to ensure a fair distribution of the company’s assets to its creditors. Secured creditors are paid first, followed by preferential creditors (e.g., employees), and finally unsecured creditors.
3. Employee Rights:
Employees are considered preferential creditors for certain claims, such as unpaid wages and holiday pay. They may also be eligible for redundancy payments from the government.
4. Investigating Directors’ Conduct:
Part of the liquidator’s role is to investigate the actions of the company’s directors in the lead-up to the insolvency. This is to identify any wrongful or fraudulent trading that may have contributed to the company’s downfall.
5. Potential for Director Disqualification:
If the investigation uncovers misconduct, directors can face disqualification from managing or directing a company for up to 15 years.
6. Professional Advice Is Crucial:
Seeking early company liquidation advice from a reputable insolvency practitioner can help navigate the CVL process efficiently and ensure compliance with legal obligations.
In summary, Creditors Voluntary Liquidation is a formal process that provides an orderly means for insolvent companies to close down and address their debts. While the process can be complex and challenging, understanding its steps and implications is vital for directors to fulfill their legal obligations and for creditors to know their rights. Professional advice from an experienced insolvency practitioner is indispensable, offering guidance and support throughout the liquidation process.
