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Guide to Creditors Voluntary Liquidation or CVL

Creditors voluntary liquidation is when a company stops trading and its assets are "liquidated" and turned into cash.

How does it start?

Creditors voluntary liquidation is started by the directors. They inform the shareholders that the company is not viable, is insolvent and so they must stop trading. The shareholders then ask a licensed insolvency practitioner to call a creditors meeting as soon as possible (not less than 14 days notice is required, but its usually 21 or so days). At this meeting the creditors vote to appoint a liquidator.  These meetings are usually held virtually unless this is explicitly requested by at least the following;

  • 10% by value of creditors or
  • 10% in total number of creditors or
  • 10 individual creditors

Then a physical meeting can be held.  However, In the current Coronavirus crisis, no meetings can be held. 

Voluntary liquidation can help you to end the worry. The process stops creditor pressure and worries, end those sleepless nights and ultimately help you get on with your life.

In the latest statistics for Q2 2021 there were 2,819 creditors’ voluntary liquidations (CVLs) . After seasonal adjustment, the number of company insolvencies was 31% higher than in Q1 2021 and 4% higher than in Q2 2020. This was driven by an increase in CVLs, while all other company insolvency procedures were lower than the previous quarter and the same quarter of the previous year.

Download our free 2021 (covid updated) 50 page pdf experts guide to creditors voluntary liquidation for more free information

When is it necessary for the directors of the company to think about creditors voluntary liquidation?

  • The company has run out of cash
  • Creditors are threatening a winding up petition or other legal action
  • The company appears to not be viable
  • The company cannot pay its debts on time
  • The directors are concerned that the business may build up more debts. 
  • They are also worried about wrongful trading.

Creditors Voluntary Liquidation Process Step by Step

Step 1

Find a liquidator. We have a number of licensed insolvency practitioners at the firm. Uniquely to KSA Group, YOU can speak to one of our IP's TODAY, if you call now on 08009700539. It is not legally possible to liquidate your own limited company!

Step 2

Pass details of any company assets over to the proposed liquidator, and our valuers may get these valued. This will independently set the value of the assets for going to auction, or you may wish to buy these back

Step 3

Let us know who the company owes money to (creditors). KSA Group will write to them all to let them know what's happening and tell them that a creditors meeting will be held. The meeting can be held over the phone or online. This will quickly remove creditor pressure from YOU and they will start talking to KSA instead!

Step 4

Give us all company information and books and records. KSA Group will give you a list of all the information we need in order to liquidate your company. This information will allow us to prepare the necessary reports for the creditors

Step 5

A company director needs to "chair the meeting of creditors". In actual fact the liquidator will run the meeting but you or one of your directors must attend it by law. The meeting of creditors is usually a simple short meeting with no one attending and can be done online or by phone conference

How Much Does Creditors Voluntary Liquidation Cost?

The costs of the process very much depends on the complexities of the case and the likely time it will take the Insolvency Practitioner to carry out their duties and responsibilities.  The main things to consider are;

  1. The number of creditors and how much is owed.
  2. How many employees there are
  3. Are there any book debts to collect
  4. How much investigation is needed into the company's affairs.

The costs of liquidation can put directors off but not doing anything is likely to cost you more in the long run!  Generally the costs start at around £3500 + VAT. This would be for liquidating a company with a single creditor, such as having an unpaid Bounce Back Loan (BBL) or HMRC. For more than one creditor issue, we would expect the fee to be approximately £3,750-4,000 plus VAT. For more complex issues including companies who have landlords, employees, BBLs and supplier debts we will provide a written quote after our meeting with the directors to discuss the company’s options. Do get in touch to discuss your company’s liquidation, don’t delay and hope the problem will go away!

What if there are no assets to pay for the voluntary liquidation?

This is a common question and one that indicates the directors have failed to control the situation carefully. Look, if there are no assets to pay a modest fee for the liquidation I would ask, where has all the money and assets gone? Surely you as directors knew (or ought to have known) that the company was facing failure and you therefore should have ACTED SOONER?

Why then has the board of directors run the company into the ground to such an extent that there is not enough in the way of cash and assets to pay for this? REMEMBER as a failed limited company the assets DON'T BELONG TO YOU!

Therefore if you have had the benefit of the assets then it makes sense for the directors to pay for the liquidation process.

How Long Does the Process Take?

The appointment of a liquidator, which means that the powers of the directors cease, usually takes between one and two weeks.

It is possible, if 90% of the shareholders agree, to do a Creditors Voluntary Liquidation in seven days but this is rare. This is more likely to happen in the case of perishable assets such as fresh food.

However, the liquidators have to sell the assets etc, do investigations and file the necessary paperwork.  This can take 1-2 years, if not longer.  The bigger the liquidation, the longer it takes (usually).

Is It Possible To Reverse A Creditors Voluntary Liquidation?

If for some reason funds are found to pay back the creditors in full then it is possible to stop the process as long as assets of the company have not been actually liquidated i.e sold. However, this is extremely unlikely to happen.  If there is money suddenly available at the eleventh hour then it might make more sense to allow the company to go into liquidation and buy back the assets at a fair value. 

What happens after the CVL is completed?

When the all the assets are sold, creditors reported to, and any monies paid over from the liquidation the company is struck off the register and effectively ceases to exist.  As the debts belong to the company the liability dies with the company.  However, if directors have personally guaranteed the company liabilities then creditors will be able to claim on these.  The liquidator will have investigated the conduct of the directors and assuming that there was nothing untoward then life carries on!  Directors are able to start a new company although there are strict rules about reusing the same or similar company name.  Learn more about this in our downloadable guide

Will Voluntary Liquidation Stop My Worries?

Voluntary Liquidation enables you to wrap up your company quickly and professionally. You can then become director of another company once the liquidation process is complete, but there are restrictions on the re-use of the company name. You will no longer be authorised to trade under an identical or similar name - it could lead you in court if you do so.  It is worth noting, if as a director you have been compliant and on the payroll for many years, you can actually claim redundancy from the government like any other employee. Ask us about this.

It might be easier to see the creditors voluntary liquidation process in a flow chart

CVL Flow Chart

Watch the video below to understand a bit more about voluntary liquidation

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Worried about poor cashflow? Feel you have got into a bit of a mess? Covid-19?, How to pay wages on pay day? For reassuring advice on a range of issues download our free Ultimate Guide For Worried Directors today. Or just call us on 0800 9700539

Please note that the guide includes updates due to Covid-19 For instance there have been some changes to insolvency legislation that limits creditors actions.  A new 20 day moratorium for distressed businesses has also been introduced. 

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