What Is Creditors Voluntary Liquidation?

Creditors Voluntary Liquidation (CVL) is one of several formal insolvency processes available to businesses that allows a company to be voluntarily wound. It’s initiated when the directors of an insolvent company recognise that the company is unable to pay its debts, and decide that the most appropriate course of action is to close the business.

Who decides on the process?

The reason it’s called a “creditors’ voluntary” liquidation is that it’s the company’s creditors who are given the right to vote on the proposal to liquidate the company. The company’s shareholders must also approve the proposal to liquidate the company, a process which is usually carried out by voting at a general meeting. As a result, the proposal must be beneficial for both parties.

Who chooses the insolvency practitioner?

Before they’re officially chosen, the IP is generally responsible for investigating the company’s financial affairs and preparing a report for the creditors, which details the company’s assets and liabilities, as well as the causes behind the company’s insolvency. The creditors then have the opportunity to vote on the IP’s appointment and to approve (or disapprove) the liquidation plan.

How is liquidation carried out?

Once the proposal to liquidate the company has been approved by the relevant voting processes, a licensed insolvency practitioner (IP) from a firm like Chamberlain & Co is appointed to manage the liquidation process. The IP will then take over control of the company’s assets, taking steps to liquidise those assets by selling off inventory, equipment, and property.

The funds released from the liquidation are then distributed to the creditors according to their legal priority. Secured creditors, such as banks or finance companies, generally have priority over unsecured creditors, such as trade creditors and employees.

How long does it take?

The liquidation process usually takes between 6-24 months, and during this time, the company ceases to trade and the employees are made redundant. The company’s directors are also required to cooperate with the IP in the winding-up process and provide any necessary information.

Why choose a CVL?

A Creditors’ Voluntary Liquidation (CVL) is often seen as the best option for directors who wish to avoid the risk of personal liability for the company’s debts descending into a far worse position. This is because once the liquidation process has begun, the company is placed under the control of the IP and the directors are relieved of many of their duties.

What dangers are there to a CVL (Creditors Voluntary Liquidation)?

It’s important to note that a CVL can have significant implications for the company’s directors. For example, if the directors are found to have acted improperly, or in breach of their duties, they may face legal action and be disqualified from acting as directors in the future. That being said, misconduct of this nature is likely to be uncovered no matter the process that’s chosen to liquidate the business.

To sum up, a CVL is an insolvency process that allows an insolvent company to be wound up in a relatively cooperative, structured manner. The process is overseen by a licensed insolvency practitioner, who will take control of the insolvency process. As with all insolvency processes, it’s important that you carefully consider the legal and financial implications, and seek professional advice before proceeding.