Creditors Voluntary Liquidation

Creditors Voluntary Liquidation

Creditors Voluntary Liquidation CVL is a legal method to close down an insolvent company. It allows a company to be closed in a professional and official manner without leaving any enforcement action or unwanted commitments hanging around that are common among companies that are not formally closed down through a company liquidation procedure.

The most important point to remember is that a limited company exists in the eyes of the law independently to that of its company directors or shareholders. A limited company is referred to as having a separate legal entity.

Crucially this means that a limited company can own assets, be owed money and perhaps most importantly owe money independently of its shareholders and directors. So the law allows for a company to be closed down even if it is insolvent.

What this means is that in generality a company director or shareholder will not be personally liable for the money that is owed by the company unless they have specifically personally guaranteed any element of the money owed by the company.

Our 6 Steps to a Creditors Voluntary Liquidation

  • 1. It should always be remembered that the decision to commence the Creditors Voluntary Liquidation Procedure should only be taken once advice has been received to consider all options for the company.
  • 2. At we can offer such advice and as Licensed Insolvency Practitioners are able to deliver all formal company options. will prepare all the necessary paperwork to convene and minute all meetings required.
  • 3. The first step to start the formal Creditors Voluntary Liquidation Procedure is to hold a meeting of the company Directors who meet to agree that the company is insolvent and that they wish to see the company proceed into Creditors Voluntary Liquidation.
  • 4. The directors also agree to convene meetings of shareholders and creditors in order to resolve to place the company into liquidation. It is normal for the company to then cease trading, with the company’s employees being dismissed.
  • 5. will assist with employee matters ensuring that any claims that the employees may have against the Government Redundancy Payments Office are dealt with. will also deal with calls from creditors of the company from the point at which they are formally requested to act on the company’s behalf with regard to the Creditors Voluntary Liquidation of the Company.
  • 6. Once appointed by members and then creditors, the liquidator has three main duties:
    • i. To realise the company’s assets
    • ii. To agree the claims of the company’s creditors
    • iii. To investigate the company’s affairs and the directors conduct.

A Creditors Voluntary Liquidation is appropriate when:

  • The company is insolvent
  • The company does not appear to be viable even if restructured
  • The directors don’t feel they have the determination or funding needed to rescue the company

A company is generally recognised as insolvent when it is unable to pay those who it owes money to when that money is due for payment. A worsening of this position over time is a clear indicator of insolvency.

What To consider

So a factor that should be considered when contemplating a Creditors Voluntary Liquidation is any Personal Guarantees given by the Directors of the company, this is common with company borrowing, premises leases and asset finance agreements.

A Creditors Voluntary Liquidation is the most common way for directors and shareholders to deal voluntarily with their company’s insolvency. In such circumstances, can act as company liquidator and assist company directors in meeting their obligations.

The ability of a Creditors Voluntary Liquidation to end unwanted contracts, including leases, is often a key factor in making the decision to liquidate a company or not.

Insolvency law

Insolvency Law allows for a company to be closed even when the company has creditors (those who money is owed to) in excess of the value of the assets of the company (anything that the company owns or is owed). In other words the company may be closed down even if the company is insolvent.

A Creditors Voluntary Liquidation CVL remains the most common insolvency procedure for Directors to deal with an insolvent company.