It is poles apart from a Compulsory Liquidation where a company is forced to do so by the court.
Directors of the insolvent company may choose the option of a CVL if the company is insolvent and the shareholders of the company agree it’s the right decision.
When cash flow is poor and creditors are owed unpayable debts, a CVL might be the best choice.
It is a director-led process where a moratorium, a period halting legal obligations, is emplaced to stop creditors from approaching the company with debt claims.
Shareholders must vote to approve of the process. Following this, the firm will cease trading and sell off its assets.
A CVL is an option for companies struggling to cope with the stress and pressure of creditors who need repayments.
It is both professional and voluntary, allowing more alternatives to the company directors than if it were a Compulsory Liquidation situation.
With a CVL, creditors can submit their claims in an orderly way and the process becomes controlled and manageable.
How does a Creditors’ Voluntary Liquidation work?
Firstly, the company directors will hold a board meeting to decide whether a CVL is the right choice for the company.
If the majority of the board are in agreement, the company will usually cease trading to avoid incurring any further debt or putting the directors at risk of being held liable for wrongful trading. The directors also agree to call a shareholders’ meeting for the shareholders to vote on placing the Company into liquidation.
With the assistance of an Insolvency Practitioner, the directors prepare a Statement of Affairs along with a directors’ report detailing the company’s trading history, the financial affairs of the company and the events leading to the company’s insolvency. This information is sent to creditors ahead of a creditors’ decision procedure.
The Statement of Affairs details the company’s assets and the amount of debt the Company owes.
The directors must provide shareholders with an opportunity to pass a resolution to put the company into liquidation either by correspondence or via a meeting. The shareholders are usually provided with 14 days’ clear notice unless the articles of the company dictate otherwise.
If the company has two or more shareholders, at least two must be present at the meeting to pass a valid winding-up resolution. If 75% of shareholders (by value of shares) agree to the winding-up resolution, then the company is placed into the liquidation process with immediate effect.
Usually, a creditors’ decision procedure is held the same day as the shareholders’ meeting.
Creditors must be provided with at least 3 business days’ notice of the decision procedure and, if it is a virtual meeting of creditors, it should be advertised in the London Gazette. This decision procedure allows creditors to vote on the appointment of a liquidator. Creditors cannot, however, stop the Company from entering liquidation.
In most instances, the insolvency practitioner will be present at the meeting of shareholders and creditors meeting to assist with the process and any queries raised.
Directors and shareholders can make an offer to purchase the company assets from the liquidator if they wish.
Most employees who are made redundant will receive any outstanding wages, holiday pay, notice pay and redundancy pay from the Redundancy Payments Service in accordance with the relevant legislation.
The liquidator appointed by the creditors will deal with employee claims and keep creditors updated, distributing company funds to fulfil these where possible.
They will realise company assets and carry out investigations on the directors and the company affairs to be reported back to the Insolvency Service to conclude proceedings.
A CVL is a professional solution for a failing company.
It gives directors control and allows matters to be dealt with in an orderly way alongside a licensed insolvency practitioner.
If you are thinking about a CVL, all you need to do is get in touch with Hudson Weir.
We can assist you with professional advice and find out whether this is the best decision for your business.
We will assess your situation and our skilled team will work alongside you to form an effective action plan.
A CVL is a big move but our team can help you figure out the next steps that are best for you.
Hudson Weir are an established firm of Insolvency Practitioners who specialise in business recovery and corporate financial solutions. Hudson Weir provides industry leading, nationwide services for its clients with the intention of easing financial pressures and providing recovery strategies for struggling businesses.More about us
Hudson Weir Ltd (Company number 09477593) is a company registered in England and Wales.