CVL (Creditors Voluntary Liquidation)

A CVL (Creditors Voluntary Liquidation) is the most common form of liquidation in use in England and Wales and formally brings to an end the operation of the company.

Benefits of a CVL for Directors:

  • A quick and cost effective way of formally closing down a company
  • Ensures you are complying with your duties as a director
  • Ends pressure from creditors
  • Allows you to negotiate with creditors regarding personal guarantees
  • May minimise directors' exposure with respect to wrongful trading action.

If you are a Director of a limited company then you have a legal responsibility to seek professional advice if you believe your company may not be able to avoid insolvency. Furthermore if you continue to trade whilst insolvent you may be found guilty of wrongful trading and, in extreme cases, become personally liable for any additional debts incurred.

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When is a CVL appropriate?

If your company is insolvent and is unable to trade out of its current cash flow problems then a CVL may be the only appropriate course of action.

The Company Director Disqualification Act 1986 deals harshly with company directors who ignore the early warning signs of insolvency, so it is important to seek advice early in order to ensure you abide by the rules set out.

A CVL is appropriate where:

  1. Your company is insolvent
  2. A CVA is not an appropriate option
  3. Your company does not appear to have a viable future – even if restructured
  4. The directors don’t feel they have the determination and/or funding needed to rescue the company

What happens next?

Once it has been proposed that a CVL is appropriate, two meetings will be called.

The first, the Members Meeting, involves the company’s shareholders who then vote on the proposed CVL. If shareholders representing 75% of the company’s share capital agree the company is placed into Creditors Voluntary Liquidation at this point.

The second, the Creditors Meeting, involves the directors of the company presenting to the creditors a report giving details of the financial circumstances, their history and the reasoning behind the liquidation. The creditors are given the opportunity to put forward any questions, and at the end of the meeting to vote on the Insolvency Practitioner that they want to be appointed as the Liquidator. In most cases this tends to be the same Insolvency Practitioner that the Directors have instructed.

It is then normal for the company to cease trading and for the company’s employees to be dismissed.

Once appointed the Liquidator then has three main duties:

  1. To realise the company's assets, and
  2. To divide the proceeds to the claims of the company's creditors, and
  3. To investigate the company's affairs and the directors conduct

Professional Memberships

R3