What is a Creditors Voluntary Liquidation? (“CVL”)
When a company is insolvent and cannot continue to trade, and where there is no prospect of a sale of the business as a going concern, the directors can voluntarily place the company into liquidation. Liquidation can only be administered by a licensed insolvency practitioner, who effectively brings an end the company’s trading by collecting in and realising its assets (if any), distributing the proceeds to its creditors, and dissolving it from the register.
The route to liquidation commences when the directors resolve that the company’s liabilities exceed the value of its assets and/or it cannot pay its debts as and when they fall due. Once the directors realise that the company is insolvent and it can no longer continue to trade, there is a shift in their duty of care from the shareholders to the creditors. From that point onward, directors must act quickly and carefully to avoid personal liability.
How can I place my Company into Creditors Voluntary Liquidation?
Our first piece of advice is to start by finding a Liquidator you trust who will assist in the formalities of placing the company into liquidation. Bridge Newland’s staff are fully qualified and they, together with our fully licensed insolvency practitioner, are more than willing to assist with your CVL needs.
Once the directors have met with our licensed insolvency practitioner to fully establish whether the CVL procedure is the best option for their business, the proposed Liquidator will commence the liquidation by obtaining a signed instruction from the director and then writing to the Company’s creditors to inform them of the intention to liquidate and by what method that is to be done.
The most common methods for placing a company into CVL are the deemed consent method or the method of a virtual meeting. Typically, 2-4 weeks’ notice is given of the date in which these methods are implemented but a Company can be placed into Creditors Voluntary Liquidation in as little as 8 days if required.
The deemed consent method involves setting a date for the decisions to wind up and appoint a liquidator to be passed and those decisions are considered approved once the decision date passes providing a certain number of creditors by value or amount don’t either object to that process for agreeing the decisions or instead request a physical meeting to decide.
The virtual meeting process is similar to the old s.98 creditors meetings where the decisions are resolved at a meeting but instead of them being held in person, leaving directors open to being interrogated by angry creditors. It is instead held by telephone conference or virtually (such as a Skype meeting).
Both of the above processes are simple to undertake, and all documents are prepared and sent by this office.
During the period in between instruction and the decisions being considered, the proposed Liquidator will request that the company’s assets be valued, if appropriate, and the directors’ assistance will be required in order to prepare the directors’ report and statement of affairs which will be presented to the creditors. These documents provide creditors with a snapshot of the company’s financial position at the date of liquidation, together with a written account of the company’s trading history, financial results, and circumstances leading to the liquidation.
If a Virtual Meeting is Held – What Happens at the Creditor’s Meeting?
The purpose of a virtual meeting is solely to allow creditors to vote on the decisions to wind up the company and to appoint a liquidator. However, in reality it is an opportunity for creditors to ask directors questions about their conduct and company affairs and therefore if your case is one of the rare cases not done by deemed consent, our staff will fully prepare you for the common questions asked at virtual meetings.
At the meetings, the creditors vote to ratify the Liquidator’s appointment or to appoint a Liquidator of their own choosing and therefore knowledge of all previous creditor issues is paramount.
Where there are between 3 and 5 creditors willing to act in a committee, the creditors have the option to appoint a liquidation committee, whose functions are to assist the Liquidator in conducting the liquidation. Where no committee is appointed, the virtual meeting of creditors will consider further resolutions, which may include the remuneration of the Liquidator and the payment of expenses in relation to the liquidation. Contrary to popular belief, creditors cannot force a company into CVL: the name instead refers to the control they have in the process to vote if one is proposed by the Director.
Creditors can vote at the meeting by proxy and are not required to attend virtually. If they do choose to attend virtually, they will usually question the directors on the company’s trading history and the circumstances leading up to the liquidation. This process is always conducted by our staff to ensure that the questions are relevant to the creditors establishing how they wish to vote on the decisions and are not of a personal nature.
Once the Liquidator is formally appointed, the company is ‘in liquidation’ and the directors’ powers cease. Practically, this means that directors can get on with their lives and turn their focus to other ventures, leaving the matter of tidying up the company’s affairs to the Liquidator.
What Duties Does the Liquidator Have?
Immediately on appointment, the Liquidator attends to his statutory duties, including advertising his appointment in the London Gazette, filing notice of the appointment with Companies House, circulating the directors’ report and statement of affairs to creditors, and notifying the Company’s bank. Work will commence immediately to realise the company’s assets, which may involve the instruction of a specialist agent, surveyor or valuer to value the physical assets and assist in their orderly sale (if this has not already taken place prior to the Liquidator’s appointment).
Outstanding debts due to the company will be collected in by the Liquidator, and the proceeds of any asset sales made by the company in liquidation are remitted to a designated bank account held in the name of the company. Funds held in the designated estate account may only be utilised to discharge the proper expenses of the liquidation in accordance with the provisions laid down in statute.
As well as realising the company’s assets, the Liquidator has a duty to investigate the affairs of the insolvent company and the conduct of its directors. Any specific matters brought to the Liquidator’s attention at the meeting of creditors will be reviewed on appointment, and the Liquidator will submit his report to the Insolvency Service within 6 months of the date of liquidation.
If the liquidation proceedings continue for more than 12 months, the Liquidator is required to report to creditors on an annual basis, and must file his receipts and payments with Companies House at six monthly intervals following the anniversary of the liquidation.
How and When is a Creditors Voluntary Liquidation Concluded?
If surplus funds are available once the company’s assets are realised (or written off, if necessary), and the costs and expenses of the liquidation are discharged in accordance with the Insolvency Rules 1986 (as amended), the Liquidator will inform creditors of his intention to declare a dividend. Creditors will be given at least 21 days to prove their debts, and the available funds will be distributed within 2 months of the last date for proving.
Once the available funds are distributed and there are no further matters arising, the Liquidator will call final meetings of shareholders and creditors to seek approval to his final receipts and payments account and his release as Liquidator. After three months from the date of the final meetings, the company is dissolved from the register and ceases to exist. This is usually no later than 12 months from when the liquidation was granted but can be as little as 3-6 months.
For further free information, advantages & disadvantages, videos and guides on this process please go to our main INSOLVENT COMPANY LIQUIDATION PAGE or fill out our contact us page by clicking the below call to action button.