What is a Creditors' Voluntary Liquidation
- What is it?
It is the most common form of company insolvency which eventually results in all of the debts being written off and the dissolution of the company. It is always instigated by the directors of the company, who appoint an insolvency practitioner to act as liquidator.
Like individual bankruptcy, once the company is in liquidation, all of the company’s debts will be written off and it is the liquidators job to find out why the company failed, whether the directors have done anything untoward and whether there are any assets to realise (turn into cash) for the benefit of creditors. Often the directors will be starting a new company in the same line of work , and it may be possible for them to purchase the assets.
- How does it work?
The directors will appoint an insolvency practitioner to act as liquidator. It is the liquidator's job to call a creditors meeting that will usually be 21 days later. At that meeting, the creditors are given the option to appoint a different liquidator, but in most instances, director’s nomination will remain.
Once in liquidation, the assets will be sold, or in situations whereby the assets were sold pre-liquidation, the liquidator will determine whether they were sold for a fair value.
As part of the liquidation process, the liquidator is duty bound to investigate the circumstances leading up to the company’s insolvency, including the conduct of the directors during this time. The director has a duty to co-operate in these investigations and provide any information or documentation as requested.
Following the liquidator’s investigations, a report will be filed and any suspected misconduct will be reported to the Insolvency Service who will decide whether further action needs to be taken. In some instances this may result in director disqualification, however, it must be noted that this is extremely rare.
- Pros for Directors
- Allows the insolvent company to be brought to an end in an orderly way
- Negotiate repayment of an outstanding directors’ loan account with the liquidator. You can also receive advice on any personal guarantees which will crystallise following the company’s liquidation
- Can often buy back assets if there is to be a new business
- Entitlement to redundancy, notice pay and other payments
- Pros for Creditors
- They may be able to appoint their own liquidator
- They can rest assured they know the reasons for the company’s failure
- The debts will not increase
- Cons for Directors
- Personal guarantees to banks or suppliers may be called in
- Their conduct and the company’s failure is investigated by the liquidator
- Cons for Creditors
- Most of the time they don’t receive anything
- They lose a customer
- Is it for me?
If you are looking to bring an end to your company, CVL could be a good option for some. However, there are other solutions available that can deal with the company’s debt problems that you may not be aware of that can result in the continuity of your business, either via the existing company or via a new one.
