A Creditors’ Voluntary Liquidation (CVL) is a liquidation process used to close an insolvent company. This means the company cannot pay its debts now and in the long-term. During the process of ‘winding up’ the insolvent business, any assets are sold and the cash used to pay creditors.
The Creditors’ Voluntary Liquidation (CVL) process
A CVL is usually instigated by the directors when there’s not enough assets to cover the company’s liabilities, which means the company is insolvent. To see if this applies to you, take our cash-flow and the balance-sheet tests.
A Creditors’ Voluntary Liquidation (CVL) might also be the best situation if enforcement action is being taken by creditors against your company, if you’re facing pressure for unpaid bills or if you’ve had to stop trading for unforeseen circumstances.
WHat happens in a CVL?
Creditors’ Voluntary Liquidation is the most common type of liquidation, used if your company is definitely insolvent. You need to appoint a licensed insolvency practitioner (if you haven’t already). They’ll become the Liquidator.
Put simply, the Liquidator takes control of the company throughout the process, disposing of its assets in order to settle its liabilities. Any monies left over are returned to the business owner or shareholders.
As your Liquidator, we’ll take charge and guide you through the CVL process. In this role we’ll:
Get shareholders’ approval. A meeting will be called where at least 75% of shareholders must agree to the liquidation or ‘winding up’ of the company.
Send the ‘winding up’ resolution to Companies House. This must be done within 15 days of it being passed.
Sell the assets. We’ll handle this whole process and distribute the cash to your creditors.
Send a notice of the liquidation to The Gazette. Established in 1665, this is the official public record containing details of businesses going through the insolvency process.
Contact us about your situation and see if a Creditors’ Voluntary Liquidation (CVL) is the right option for you.
What are a Director’s Responsibilities during liquidation?
You, and the company’s other directors, must act with honest and integrity throughout the liquidation. Not doing so could lead to being disbarred as a director and, in extreme cases, criminal prosecution.
The technical term for this is ‘misfeasance’ – the breach of duty of a director’s fiduciary duties. And Liquidators are legally bound to report it to the court.
So what should you do – or not do?
- Do not give preferential treatment to one set of creditors.
- Do not sell company assets for below their market value (it’s not unknown for a director to sell an asset cut-price to a relative or friend to avoid it being part of the liquidation process).
- Do not pay yourself, other directors or staff members a salary that the business cannot realistically sustain.
- Do not hide company assets with a view to selling them at a later date for personal gain.
Can you start another business after liquidation?
It’s a common misconception that liquidating a company automatically disbars its directors from setting up other businesses. This is not the case. In some situations, you can restart after liquidation. In fact, it could actually prove to be the new beginning you need to create a successful business.
We offer a unique way to do this, called Start Afresh Liquidation.
Phoenix companies
A phoenix company is one that ‘rises from the ashes’ of an insolvent one. The Gazette describes them as “a business that is formed when the assets of an insolvent company are purchased out of a formal insolvency process, often by the existing company directors.”
Your IP will be able to advise you on the dos and don’ts of setting up such a venture.
Passing off
Giving your new company the same or similar name to the defunct one is something to avoid. This is known as ‘passing off’ and could lead to criminal prosecution.
It could also damage your reputation, leading former creditors and suppliers to believe the reason for the previous liquidation was simply to avoid paying them.
If you need advice on whether a Creditors’ Voluntary Liquidation is the right solution for you, taking action now can help you exit on your own terms and build a stronger future. Contact our licensed insolvency practitioners for free, confidential advice on your situation.
