Creditors' Voluntary Liquidation
Explainer
A Creditors' Voluntary Liquidation is the legal formal closure of the Company.
It is called "Creditors" because it is a process which directly affects the creditors who are not expected to be paid back in full.
It is called "Voluntary" because the Director have taken steps voluntarily to place it into liquidation after having realised that it cannot continue trading.
Risk Management
Undertaking a voluntary process indicates that the Directors are taking the right steps to conclude the company's affairs.
Contrary to some expectations, most Directors have, at some stage, placed a company into liquidation and it will stop a Director acting again or in other businesses
Creditors' Voluntary Liquidation or CVL is a legal process where a company decides to shut down and liquidate its assets because it can't pay its debts. It's a controlled way of ending the business in an orderly manner.
How does a CVL work?
When the company’s directors decide that the business can no longer continue trading (usually because of serious financial difficulties) and can’t pay what it owes, they choose to close the business voluntarily by starting a liquidation process.
The directors appoint a proposed liquidator, who is a licensed insolvency practitioner. The insolvency practitioner assists with placing the company into liquidation and once appointed, the liquidator's job is to sell off the company’s assets (like property, stock, and equipment) and use the money to pay off as much of the company’s debts as possible.
The process is formal and involves submitting paperwork to the courts. Once everything is concluded, the company is officially closed down and removed from the register of active businesses.
How does it help?
There is an organised, legal process to deal with company's employees, assets and creditors.
Where a company cannot meet ongoing payroll, it enables employees to get payment from the redundancy payments office including unpaid salary, notice pay and redundancy.
What is the process to place a company into CVL?
The directors approach a licensed insolvency practitioner (IP) who will provide advice on options and assist with chosen process (in this case being a CVL).
Board Decision - The directors first hold a board meeting to discuss the company's financial difficulties and agree that the business is insolvent (unable to pay its debts) and cannot continue trading. They resolve that the company should be placed into liquidation
Shareholders’ Meeting - A general meeting of the shareholders is held to officially vote on and approve the liquidation decision. At least 75% (in terms of share value) of shareholders must agree to the liquidation for it to proceed.
Creditors’ Meeting - A meeting is held with creditors, known as a "virtual" meeting or a "deemed consent" process, where the creditors don't have to be physically present. Creditors vote to approve the appointment of the IP as the official liquidator, who will take over the company’s affairs and liquidation process.
What are the potential outcomes of a CVL?
There is only one outcome. All the assets of the business are sold to pay costs and creditors and the company will cease to exist.