Here’s the answers
What is a Creditors’ Voluntary Liquidation (CVL)?
A CVL is a procedure which occurs when the shareholders of the company voluntarily decide to put a company into liquidation, because it has become insolvent.
Once a Liquidator has been appointed by the shareholders, it is up to the creditors to either ratify this appointment or appoint a different liquidator at a meeting of creditors.
When a liquidator is appointed, they will look to take control of the company assets, sell those assets if it is cost effective to do so, deal with the company creditor and investigate the affairs of the company prior to the liquidation.
A CVL is one of the more common ways for a business to deal with insolvency, on a voluntary basis.
If your business is struggling, a licenced insolvency practitioner like MGJL, may be able to help, using some of their business recovery options.
How does a CVL work?
The condition for a CVL is that the company is already insolvent. Insolvency can either be when a company’s assets are worth less than its liabilities or when it has inadequate cash flow. If this has occurred, and following subsequent advice from a professional insolvency practitioner that a CVL is the right move, then the following initial processes are invoked:
- The board of directors decides to instruct a licensed insolvency practitioner to begin the liquidation process, as they believe the company is insolvent.
- Following the board meeting, notices to creditors and shareholders are circulated announcing that the board believes the company should be placed into a CVL. They will be notified of the date and time of the relevant meetings and given information about the various resolutions that may be sought.
- A meeting of shareholders is usually held before a meeting of creditors. It is at this point that the shareholders are asked to resolve to wind the company up, due to its financial position and to appoint the instructed liquidator. At this point the company goes into liquidation. It is normal for the meeting of creditors to be held immediately after the shareholders have resolved to place the company into liquidation.
- A director’s report and Statement of Affairs is presented to the meeting of creditors for creditors to understand the background of the company, its current financial position and how it finds itself in such a position.
- At this point creditors can ask questions of the director, specific to the information presented.
- Creditors are then normally asked to ratify the appointment of the liquidator, or to propose a different liquidator.
The appointed liquidator then acts in the interests of creditors, to wind the affairs of the company up. This normally entails locating, dealing with and selling the company assets, dealing with creditors, investigating the affairs of the company and distributing funds to creditors if they become available.
What does a director need to consider during a CVL?
It is important to remember that, as a director of an insolvent company, you are under a legal obligation to act in the creditors best interests. If you have not acted in the best interests of creditors’, at a time when you ought to have reasonably known the company was insolvent, then, as a director, you could be held personally responsible.
If you become aware that the company is insolvent, the sooner the decision is made to put the company into liquidation, the greater the chance of minimising accusations of any misfeasance as a director.
Is a CVL right for my business?
A CVL is the appropriate decision for your business if:
- Your company is insolvent
- The market has declined for your services and products and you do not think you will be able to turn things around
- Even if restructured, the business doesn’t look viable
Many insolvency practitioners will offer businesses a free initial meeting to help them with their options. The fear of insolvency is a huge burden to bear on your shoulders – an IP can help to share the weight and help you move forward.
Find out about the CVL Process if your business is struggling. Speak to one of our licensed insolvency practitioners for more info.