Creditors Voluntary Liquidation (CVL)
A CVL is the voluntary winding up of an insolvent company. For a company to be placed into CVL, the company directors must recommend to the company shareholders that the company be placed into liquidation as a consequence of the company being insolvent. I.e:
- Cash flow insolvent – The company can no longer afford to pay its debts as and when they fall due.
- Balance sheet insolvent – The liabilities of the company exceed the value of the company’s assets.
WHEN IS A CVL APPROPRIATE?
A CVL is appropriate when a company is insolvent. The company can either no longer pay its debts as and when they fall due, or when its liabilities exceed the value of its assets.
WHY CANT I JUST STRIKE THE COMPANY OFF?
A company is struck off from Companies House register when an application is made to Companies House for the company to be removed from the register. This can only be done if it:
• has not traded in the last three months.
• has not changed names in the last three months.
• is not presently threatened with liquidation.
• has no agreements in place with creditors, e.g. a Company Voluntary Arrangement (CVA).
DO I NEED TO GO TO ANY MEETINGS?
The directors would hold a board meeting to consider recommending liquidation to the company’s shareholders. Following this an extraordinary general meeting of the shareholders must be held for the members to pass resolutions to place the company into liquidation and to nominate a liquidator.
As of 6 April 2017, it is no longer an automatic requirement of the Insolvency Act 1986 (as amended) to hold a physical meeting of creditors. Depending upon the circumstances of the liquidation the members’ appointed liquidator may be ratified as the creditors’ liquidator by deemed consent or by holding a virtual meeting.
A physical meeting of creditors will only be held if it is specifically requested by either creditors representing ten percent of the total creditor debt, ten percent of the total number of creditors or by ten creditors in number.
WILL THE CVL BE ADVERTISED?
Notices of the liquidation must be advertised in the London Gazette. This is the only place that the liquidation is usually advertised unless the liquidator feels it is necessary to place additional advertisements.
WHAT ARE THE LIQUIDATOR’S DUTIES?
A liquidator has a number of practical and statutory duties to adhere to in the normal course of a liquidation. These duties include:
• The maximisation of realisations from the assets of the company for the benefit of the company’s creditors.
• Reporting to creditors on the progress of the liquidation and, where appropriate, seeking creditor approval for certain actions within the liquidation.
• Where appropriate, the collation and agreement of creditor claims against the company.
• The distribution to creditors of all available funds that have been realised through the liquidation process.
• The investigation into, and the reporting upon, the conduct of the company directors prior to the company’s liquidation.
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