Creditors Voluntary Liquidation (CVL) is a formal insolvency procedure used by an insolvent company to close down its operations and liquidate its assets. It is initiated by the company directors when they believe that the business is insolvent and can no longer continue trading.
In this article, we will discuss the process of a CVL including its advantages and disadvantages.
Creditors’ Voluntary Liquidation Process
The key processes of a CVL involve the following steps:
Step 1: Board Meeting
The directors of the limited company must convene a board meeting to discuss the company’s financial position and decide whether to initiate the CVL process. If they decide to proceed, then they must pass a resolution to that effect.
Step 2: Nominate a Liquidator
The directors must nominate a Licensed Insolvency Practitioner to act as the liquidator. The liquidator will be responsible for managing the CVL process which will involve the sale of the company’s assets and distributing the proceeds amongst the company’s debts.
Step 3: Call a General Meeting
The directors must call a general meeting of the company’s shareholders to obtain their approval for the CVL process. At the meeting, the shareholders will be asked to pass a special resolution to wind up the company.
Step 4: Notify Creditors
The company must notify its creditors of the proposed CVL and provide them with a copy of the resolution passed by the shareholders. The creditors will then have the opportunity to vote on the appointment of the liquidator a the creditor’s meeting.
Step 5: Liquidation Commences
Once the shareholders and creditors have approved the CVL, the company liquidation process commences. The liquidator will take control of the affairs of the company and arrange for the sale of its assets. The liquidator will then distribute the net proceeds amongst the company’s creditors and finalize the closure of the business via Companies House.
Creditors Voluntary Liquidation Advantages and Disadvantages
Advantages of Creditors Voluntary Liquidation
- A CVL allows the directors of a company to take control of the process and ensure that the proceeds from the sale of the assets are distributed fairly among its creditors.
- A CVL provides a cost-effective way of winding up a company as the process is usually quicker and less expensive than other forms of insolvency.
- A CVL allows the directors to avoid the stigma associated with compulsory liquidation as the company is voluntarily winding up its affairs.
- The debts of the company are written off following the completion of the liquidation meaning that directors will only remain liable for any that they held a personal guarantee for.
Disadvantages of Creditors Voluntary Liquidation
- A CVL may result in the loss of jobs for the company’s employees, as the company will no longer be able to operate.
- A CVL may result in the loss of investment for the company’s shareholders as the company’s assets will be sold and distributed among its creditors with shareholders ranking below all other classes of secured creditors and unsecured creditors.
- A CVL may damage the directors’ reputation as it may be seen as an admission of failure.
Creditors Voluntary Liquidation Timeline
The CVL process usually takes between four to twelve months to complete. The timeline can vary depending on the complexity of the company’s affairs and the number of creditors involved.
Creditors’ Voluntary Liquidation Cost
The cost of CVL depends on various factors such as the complexity of the company’s current status and the number of creditors involved. The cost of CVL typically ranges from £3,500 for a straightforward case to over £7,000.
Summary
A CVL is a legal process used by companies to wind up their operations and distribute the company assets among company creditors in a fair and equitable manner. The CVL process involves several steps, including a board meeting, nominating a liquidator, calling a general meeting, notifying creditors, and commencing the liquidation process.
CVL can be a cost-effective and efficient way of winding up a company, and it allows the directors to maintain control of the process. However, it can also result in job losses and loss of investment for shareholders.
If you are considering CVL for your company, it is essential to seek professional advice from an authorized insolvency practitioner. At Company Doctor, we can provide expert advice and support throughout the CVL process. Contact us today at 0800 169 1536 to learn more about our services and how we can help you with your CVL.
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