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 because it has become insolvent and unable to continue to trade. The company’s shareholders pass resolutions to place the company into liquidation and to appoint a liquidator. The creditors then confirm the liquidator’s appointment.
The liquidator’s appointment is confirmed by creditors by way of a creditors’ decision process (such as a virtual meeting or by a deemed consent procedure). As part of the decision process, the creditors also have the right to choose an alternative liquidator if they meet the required threshold for voting purposes.
A CVL may be appropriate when the company is insolvent and 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