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A Liquidation is the main director-led closure process for insolvent companies

What is a Creditors’ Voluntary Liquidation?

A Creditors’ Voluntary Liquidation (CVL) is the most widely used form of liquidation in the UK. It is generally used when the Company’s directors choose to voluntarily close the business in a way that is efficient and professional.

Generally, a CVL is used when the amount of liabilities is greater than the company’s  assets, or the company cannot pay its debts as they fall due, meaning it is technically insolvent. If a director continues to trade a company beyond this point, there is a higher risk that they will be held personally liable for some of the company’s debt.

How does a CVL work?

The first step is to speak with one of our experienced team, who will usually be a Licensed Insolvency Practitioner, who will conduct a full review of your company’s financial position in order to determine whether a CVL is your best option, as there may be other suitable rescue alternatives depending on your circumstances. In cases where a CVL is appropriate, you engage the Insolvency Practitioner as your proposed Liquidator who will liaise with your creditors and start the formal side of the process, providing all of the documentation that is needed. The Insolvency Practitioner will arrange for a meeting of shareholders to be called in order to formally place the company into liquidation. The Insolvency Practitioner will also write to your creditors, HMRC, the company’s bankers and others to advise that the company will be placed into liquidation. Our team will advise you whether a creditors meeting will be required, or whether a different route can be used where no creditors meeting is necessary.

Creditors are given notice of the liquidation (and whether there is to be a creditors’ meeting). If there is to be a meeting, in practice it is rare that anybody other than the directors and the insolvency practitioner will attend. The liquidation will also be advertised in the London Gazette (a statutory notices newspaper which banks and other financial institutions will read). Prior to the liquidation, the Insolvency Practitioner will work with the directors to prepare a pack of information that will outline the company’s position and how it has reached the point of insolvency, including a summary of the company’s assets and liabilities. If there is a meeting, the Insolvency Practitioner will conduct the meeting on behalf of the directors and present the information pack. If any creditors do attend, this will often be by telephone conference call and they will be given the opportunity to ask questions, and the Insolvency Practitioner will discuss with you before the meeting if this is likely to happen and what to expect. The Liquidator is appointed if creditors representing more than 50% of the value of claims voting are in favour for the proposed liquidator.

Once the Liquidator is formally appointed, it is their job to realise the assets of the company in order to pay a dividend to the creditors.

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We know that it is often difficult for business owners to make the decision to shut a firm that is experiencing financial difficulties. In many cases, you will have already struggled to manage cash flow, meet the wage bill and keep your creditors at bay, no doubt leaving you feeling stressed and overwhelmed. That’s why our team of experts are on hand to listen to your unique set of circumstances before guiding you through the process of a Creditors Voluntary Liquidation.

A Liquidator carries out other functions to ensure the company is closed in an orderly fashion. These include:

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It is important to note that Directors of the company must carefully consider and document any decisions made during trading that continues after they realise the company is insolvent. If the directors continue to trade after this point, and a creditor challenges their actions, this can result in a prosecution and financial claim for wrongful trading which may put the Directors personal assets at risk. We will advise you on minimising these risks.