A Creditors Voluntary Liquidation (CVL) is the name given to the process which is initiated by the directors of an insolvent company to place the company into insolvent liquidation. When the directors have concluded that there is no prospect of saving the business of the company and that alternative insolvency procedures are unlikely to deliver a better return to creditors voluntary liquidation using the CVL procedure is the right choice.
The CVL procedure is used when there is no hope of the company surviving. In some circumstances part of the business of the company may be saved where there is an arrangement made with the directors before the company is put into liquidation for the directors to purchase some of the assets of the company so that they can use them in a new company. Expert professional help is essential in these circumstances to ensure the directors comply with insolvency rules and regulations and also communicate with creditors so that creditors understand they are not being unfairly treated.
The Creditors Voluntary Liquidation Process
The directors consult a licensed insolvency practitioner. The Insolvency Practitioner reviews the company’s financial position and considers with the directors any insolvency solutions which may be appropriate for the company and in the best interests of the company’s creditors. The CVL process is typically used for winding up a company which has failed and has ceased trading. If any trading is to continue up to the date of formal liquidation this will be very limited and only for purposes such as the completion of final orders of products in a production pipeline.
Following the review by the Insolvency Practitioner the directors meet formally as a Board of and resolve to convene meetings of the company’s shareholders and the company’s creditors. At the meeting of the shareholders a resolution will be proposed that the company should be placed into liquidation and the Board’s recommended insolvency practitioner appointed as liquidator. As the main stakeholders in a CVL are the company’s creditors a meeting of creditors then takes place. The creditors have the option of voting to confirm the appointment of the shareholders’ nominated liquidator or voting to appoint an alternative insolvency practitioner of their choice as liquidator.
Once a liquidator is appointed the process of winding up the company commences. The liquidator must act independently of the company’s directors and shareholders and in the interests of the company’s creditors. In summary the liquidator ‘s jobs are to:
- Collect in the assets of the company and sell them for the best price available in the market at the time.
- Establish the values of all creditors’ claims
- Assist the company’s employees with submissions of claims to the Redundancy Payments Office for statutory redundancy pay, holiday pay and pay in lieu of notice
- Pay dividends to creditors.
- Investigate the conduct of the company’s directors and report to the Department for Business Innovation and Skills (BIS).
- Report to creditors on the conduct of the liquidation.
The Company’s Directors
Limited liability companies protect the company’s directors so that if a company is insolvent the creditors of the company cannot claim against the directors personal assets for the creditors’ losses. This protection is designed to ensure that directors of companies can do their jobs as directors knowing that they will not be personally liable if the company loses money and cannot pay its creditors. Directors must act responsibly and when a company is insolvent the directors are required to act in the interests of the company’s creditors. This means that in some circumstances directors can be made personally liable for losses suffered by a company’s creditors and they can also face the risk of being disqualified from acting as directors or even criminal charges in the most extreme cases.
After a company is placed into liquidation the company’s liquidator us required to investigate how the directors have acted in the period of time when the company was insolvent before the liquidation commenced.
If you would like to find out more about how you may be at risk as a director or you need advice about what you ought to do in difficult circumstances facing your company…