What is a Creditors’ Voluntary Liquidation (CVL)?
If you as a company director feel that your company is suffering from insolvency then seeking advice regarding a Creditors’ Voluntary Liquidation (CVL) may be the best first step.
A CVL is a formal insolvency process used to close a company that has reached a position of insolvency.
This is a director-led process which sees directors taking control of their insolvent company by entering it into a CVL.
This voluntary liquidation will give the director more flexibility over the process then if they were to be wound-up via the court. Liquidation means that the company will cease trading, assets will be realised and sold, and there may or may not be distribution to creditors from the sale of the assets.
A CVL can also be used as a business rescue process by giving the directors the opportunity to purchase the assets and goodwill of the business with the hope of opening up a new company.
CVL as a business rescue option
Within a CVL process there will be an opportunity for the directors to purchase the assets and goodwill of the business with the purpose of them re-opening it under a new company name.
This is how a CVL process can help rescue a business from full closure liquidation.
Some Warning Signs of Insolvency
- Creditors threatening legal action to retrieve funds owed
- The company has been put on stop by a supplier
- The director has not taken a salary for a few months due to the lack of available funds
- The company is unable to receive further credit
How to test insolvency
- The Cash Flow Test: The company are unable to make payments as and when they fall due
- The Balance Sheet Test: The company’s liabilities outweigh their assets on an up-to-date balance sheet of the company
A CVL is appropriate when….
- The company is insolvent
- The company is not viable for a business rescue process
- The directors do not want to accrue any further liabilities to creditors by trading insolvently
What happens to any assets left in a company?
It is the appointed Liquidator’s job to get any remaining assets of a company valued by a third party agent and then sell the assets in order to realise the funds.
All funds realised from the sale of the company assets will be utilised within the liquidation and then distributed to creditors in the order laid down within the Insolvency Act 1986.
Areas we advise on
- Cash flow
- HMRC pressure
- Legal action threatened by creditors
- Business debt management
- Turnaround strategies
- Business rescue support
- Small business insolvency
For further help and advice, contact our Insolvency Practitioners for a free & confidential enquiry.