A Creditors’ Voluntary Liquidation (CVL) is a terminal insolvency procedure whereby the directors of a company instruct a Licenced Insolvency Practitioner to act as liquidator to wind up the company’s affairs. The company’s shareholders pass resolutions to place the company into liquidation and to appoint a liquidator.
Due to relatively recent changes to insolvency legislation, a physical meeting of creditors can no longer be convened unless a request is made by the requisite threshold of creditors. The liquidator’s appointment is therefore confirmed by creditors by way of a creditors’ decision process. The creditors may also elect to choose an alternative liquidator.
A CVL may be appropriate when some or all of the following apply:
- The company has a diminishing order book
- The market for its goods or services has reduced or disappeared
- Its liabilities are substantial meaning that a CVA would not yield a viable return to creditors
- The directors no longer have the appetite to continue in business
- A creditor has threatened to wind the company up through the courts and the directors would rather control the proceedings themselves
- The company is insolvent and no longer viable
The appointed liquidator’s role is to realise the company’s assets and make a distribution to creditors if there are surplus funds after the costs and expenses of the liquidation have been met. A liquidator also has a duty to carry out an investigation into the causes of the company’s failure and issue a report on director’s conduct to the Insolvency Service. Speak to us to discuss CVLs and the liquidation process in more detail.