What is a Creditors’ Voluntary Liquidation (CVL)?
If a company is struggling to keep up with its debts, the company can be closed down with a Creditors’ Voluntary Liquidation (CVL). To begin a CVL, the shareholders of the insolvent company must agree to pass a winding up resolution. For the winding up resolution to be valid, at least 75% of shareholders (by voting rights) must be in agreement with this course of action.
The next stage is to appoint an Insolvency Practitioner to act as a liquidator, which is done by a simple majority of shareholders at the same time as passing the winding up resolution. The role of the liquidator is to manage the winding down of the business. Once the liquidator has been appointed, the owners and directors will no longer be responsible for the company. Tasks which the liquidator will have to manage include:
- Organising the creditors’ meeting
- Placing an advertisement announcing the Creditors’ Voluntary Liquidation in The London Gazette
- Settling legal disputes with creditors
- Selling assets to raise funds for paying creditors where possible
- Paying liquidation fees
- Removing the company from the Company Register
If the resolution for liquidation is passed by the shareholders, a creditors’ meeting must be called within 14 days. Creditors have to be given at least 7 days’ notice of the meeting and must also hear of it by an advert in The London Gazette.
Creditors who wish to, will attend the meeting along with the liquidator and a director of the company. A statement of affairs must be presented which includes a summary of the business’s liabilities. This lists the creditors along with how much each is owed. The nominated liquidator often helps directors prepare this document.
The statement of affairs also provides an opportunity for creditors to see a summary of the business’s assets along with their original value and how much they are expected to sell for (as judged by an independent valuer where the assets are significant).
The meeting is the point of the Creditors’ Voluntary Liquidation (CVL) where creditors are given the chance to ask questions about why the company is closing and find out why it was unable to pay its debt. It is rare for any creditors to attend these meetings however.
After the meeting, the Liquidator carries out his duties of winding down the company’s affairs and reporting to the Insolvency Service on the director’s conduct before concluding the liquidation and dissolving the company which will see it removed from the company register.