What is a Creditors’ Voluntary Liquidation?
A Creditors’ Voluntary Liquidation (CVL) is a procedure to wind up an insolvent company. An Insolvency Practitioner can assess whether an insolvency procedure can rescue the business, advise the directors on the risks of trading on and discuss the option of liquidating the company.
We work with small and medium sized company owners across South Wales. Our initial work with new clients is free and fully confidential.
How will a Creditors’ Voluntary Liquidation affect the Directors?
If there is no reasonable prospect of saving the company the directors should not trade on regardless. If directors continue trading knowing the company is unable to avoid insolvent liquidation, and the overall debts of the company increase during this period, they may be found personally liable to contribute personally to reinstate those losses.
When a company enters liquidation it triggers a creditor’s right to call on personal guarantees provided by directors. If the director holds an overdrawn loan account with the company this becomes repayable and will be claimed by the liquidator. If the company owes money to the director they can make a claim in the liquidation.
It is important the director acts in the interest of the creditors as a whole. If the director’s actions prejudice certain creditors, increase the overall debt or deplete the asset pool a claim may be made against the director.
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How much does the liquidation process cost?
It is a common misconception that directors or shareholders must fund the voluntary liquidation process personally. In most cases the funds raised from the sale of company assets will be sufficient to meet the cost of the liquidation. Advice should be sought early before the assets of a company are depleted to ensure there is sufficient value to meet the cost of the voluntary liquidation process.
How does a company enter Creditors’ Voluntary Liquidation?
Our Insolvency Practitioner will work with the directors and shareholders to ensure the process is straightforward. There are a number of formal steps which we will guide you through and we will prepare the necessary formal legal documents.
As a guide, the steps are as follows:
- We discuss the company’s finances with you and advise on the different options. If you decide to move forward with the CVL process we collect in information about the company from you, the accountant, payroll providers etc.
- We assist the directors to produce a Statement of Affairs to outline the assets and liabilities of the company and the likely return to creditors.
- A meeting of the company directors is held to resolve to place the company into liquidation.
- A meeting of the company shareholders is held to resolve to formally place the company into liquidation.
- The creditors are approached to agree the liquidator nominated by the shareholders to act going forward or select an alternate.
- The liquidator then acts to ensure the employees receive their full entitlements from the Redundancy Payments Service without delay, collect in the assets and pay distributions out to creditors.
- The liquidator will also issue a report to the Insolvency Service on the conduct of the directors to determine whether any director should be prohibited from acting for a period going forward.
Call us today for free confidential advice on 02920 611047 (Cardiff) or 01633 927002 (Newport)