Detailed Guide to Creditors Voluntary Liquidation (CVL)

This is a common question that we're asked. What voluntary liquidation means is the company is brought to an end. Directors consider whether the business is viable or not and whether they have the determination to carry on trading. If they don't have that determination and or the business doesn't appear to be viable, then they must act in the best interest of their creditors, not in the best interest of the shareholders and themselves.

Typically, the company works out that it is insolvent. It must be insolvent to go into liquidation, and then there are three steps. The first step is the directors hold a board meeting and agree that the company is no longer viable and they pass a resolution to go down the liquidation path. That's called a director's meeting. The second step is a shareholders meeting, and the directors call the shareholders meeting at which the shareholders also make a decision based on resolutions. Now the directors and the shareholders could be the same people in very small companies. In large companies, then there could be different people.

At the shareholders meeting, the directors present the situation to the shareholders with a statement of affairs to say that the company is no longer viable and they don't wish to continue trading.

The shareholders then initiate the process of liquidation by nominating a liquidator and passing a resolution called an extraordinary resolution to place the company into liquidation, but they haven't put the company into liquidation at that stage. A notice goes to all of the creditors from the proposed liquidator who must be a licensed insolvency practitioner. He or she then calls that creditors meeting. And it is in fact the creditors at that meeting, typically twenty one days later, who place the company into creditors voluntary liquidation.

As its name implies, it is the creditors who make that decision.

They also decide whether the nominated liquidator is approved as the liquidator.

Once that process has occurred, the directors have no fiduciary duty or responsibility for the business anymore. And here are the benefits of liquidation.

Firstly, the liquidator can terminate any leases, any employment contracts, and director's contracts.

Thirdly, the company ceases trading, and there are no more liabilities building up.

What are the jobs of the liquidators? Well, the liquidator must, number one, investigate your conduct as directors to make sure that you've acted reasonably and responsibly and done everything that you should have done. So make sure that you have reasonably up to date books and records, and make sure that all information is available for the liquidator. The second job of the liquidator is to collect all of the assets and turn them into cash. So that might be stock or debtors. He turns that into cash, and that's called liquidation.

The third job is to agree with the creditors what their debts are and to build a statement of affairs. And then if there are any monies, his fourth job is to spread the money out to all of those creditors in the form of a dividend. It's most unusual for voluntary liquidation to pay much of a dividend.

And the final job of the liquidator, and this can be sometime later, is to report to the Department of Business Innovation and Skills or DBIS on the conduct of the directors as to whether they've acted properly before and after the liquidation process. And if they have, they have nothing to worry about. A common question we're asked is, can I be a director of another company? Yes. You can. But you should not call that company by the same name as as the original company that went into liquidation. That is a criminal offense.

We can advise you on how to deal with all of those and give you alternative options like administration, company volunteer arrangement, and dissolution. Please see more at company rescue dot co dot u k or call our number for more details.