CVL ADVICE – What is creditors voluntary liquidation?
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 handled by a licensed insolvency practitioner, who effectively brings an end to a company’s legal existence 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 onwards, 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 who will assist in the formalities of placing the company into liquidation. Bridge Newland are fully qualified and have a licensed IP who would be more than willing to assist with this.
Once the directors have met with a licensed insolvency practitioner and fully explored their options (to ensure that the CVL procedure is appropriate) the proposed Liquidator will convene meetings of shareholders and creditors, on behalf of the board, to consider various resolutions to place the company into liquidation. Appropriate notice must be given (at least 7 clear days to creditors, and at least 14 clear days to shareholders, although shareholders can agree to hold their meeting at short notice). During this interim period, 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 meetings. 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.
What Happens at the Member’s & Creditor’s Meetings?
At the meetings, the shareholders resolve that the company is insolvent and should be wound up, and that the directors’ nominee be appointed as Liquidator. At the subsequent meeting of creditors (usually held immediately afterwards) the creditors vote to ratify the Liquidator’s appointment or to appoint a Liquidator of their own choosing. Where between 3 and 5 creditors are willing to act, 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 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 refers to the control they have in the process.
Creditors can vote at the meeting by proxy, and are not required to attend. If they do choose to attend in person, they are able to question the directors on the company’s trading history and the circumstances leading up to the liquidation; however, this process is handled in an orderly manner and the purpose of the meeting is not to make directors feel uncomfortable, but rather to assist creditors in understanding why the company is no longer viable.
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 pari passu 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 PAGEor fill out our contact us page by clicking the below call to action button.