Creditors Voluntary Liquidation (CVL)

A Creditors voluntary liquidation or CVL is used when the Directors and/or Shareholders voluntarily instruct an Insolvency Practitioner to place the Company into liquidation.

The Company will be insolvent on either (or both) a balance sheet basis and a cash flow basis. By insolvent on a balance sheet basis we basically mean when the liabilities total more than the assets. Insolvent on a cash flow basis is applicable when a company cannot pay its debts as and when they fall due.

Once the decision has been taken to enter a Creditors voluntary liquidation (CVL), two meetings will be called. Usually a Members Meeting takes place 15 minutes before a Creditors Meeting. The Members Meeting will have the Insolvency Practitioner and shareholders (either in person or by proxy) in attendance. As long as 75% of shareholders agree, the Company is placed into Creditors voluntary liquidation at this point.

As the name may suggest, Creditors may attend the Creditors Meeting if they so wish. Upon an instruction, the proposed Liquidator will write to all of the Creditors and give them notice of the Creditors meeting (usually 14 to 28 days). The directors would attend and present a report detailing the company’s financial circumstances, their history and the reasoning behind going into liquidation and creditors would be allowed to put forward any queries they had about the liquidation. At the end of the meeting creditors get the opportunity to vote for the Insolvency Practitioner that they wish to be appointed as Liquidator. In the vast majority of cases this tends to be the Insolvency Practitioner that the Directors have instructed.

Once the Liquidator had been appointed the company would then formally cease to trade if they had not already done so and the next steps of the Creditors voluntary liquidation can commence.

The Liquidator will then realise the assets and divide the proceeds (after his fees and costs) between the Creditors according to their order of priority. In addition the Liquidator has a statutory duty to investigate the Directors and report their findings to the Directors Disqualification Department within 6 months of their appointment.

If it were the case that the assets aren’t enough to cover the liquidators fees, these would have been predetermined when they were appointed, then the directors would become liable for the fees as per the agreement they have in place.

Finance7 have no statutory duty to represent the interest of Creditors (unlike an Insolvency Practitioner). We will assess the position of your company and check that your exit strategy is sound. We will ensure that your personal liability is minimised, your chances of being disqualified are reduced, we will represent you at the Creditors Meeting, assist with answering the Directors Questionnaire, and introduce you to a commercially aware Insolvency Practitioner that we recommend and trust.