Creditors’ Voluntary Liquidation
What is a Creditors' Voluntary Liquidation?
Regrettably, it is often not possible to sell a business, as it may not be viable under current economic conditions or the directors of a company do not seek help in sufficient time to allow the company to be saved. These reasons can lead to a company being placed into liquidation and its assets sold off. The proceeds of the sale are then distributed to the creditors, in a defined order of priority.
A CVL is a liquidation begun by resolution of the shareholders, but is under the effective control of the creditors, who can appoint a liquidator of their choice.
Because of changes in legislation placing greater onus of responsibility on the directors of a company, the CVL is the most common way for directors and shareholders to deal voluntarily with their company’s insolvency. This is because it is in the interests of the directors to take action at an early stage, in order to minimise the risk of personal liability for wrongful trading. Furthermore, unlike a compulsory liquidation, a CVL does not bring the directors’ conduct under the scrutiny of the official receiver, although the liquidator is required to report to the DTI on the conduct of the directors.
It is also possible for a liquidation to proceed as a CVL without the need for a creditors’ meeting, where it follows immediately on the conclusion of an administration and there are funds available for the unsecured creditors. The liquidator will be the administrator, or other person previously approved by the creditors.
For more information about CVL's, contact us.