What is a CVL?
Creditors’ Voluntary Liquidation (CVL) is a legal process in which a company that is no longer able to pay its debts as and when they fall due, or whose liabilities exceed its assets, is wound up and its assets are distributed to its creditors.
The process of a CVL typically begins when the directors of the company determine that it can no longer pay its debts as they fall due, as they have insufficient cash. They then resolve to wind up the company, and appoint a liquidator to take control of the company’s assets and to oversee the process of liquidation.
The liquidator’s primary responsibilities include realising the company’s assets, collecting any outstanding debts, and distributing the proceeds to the creditors in accordance with the priority order of their claims.
Creditors have to submit a claim for their outstanding debt to the liquidator, which the liquidator then examines for validity and ultimately, if funds allow, pays as per the correct priority order.
The process into a CVL
If you are a company director in the UK and you are considering placing your company into liquidation, here are the steps you should follow. Mackay Goodwin can advise on each one.
- Determine if your company is insolvent.
- Consider your options for dealing with the insolvency, including administration, CVL, a Company Voluntary Arrangement and compulsory liquidation.
- Assuming a CVL is the correct option, appoint a Mackay Goodwin licensed insolvency practitioner to act as the liquidator.
- Hold a meeting of the shareholders and pass a resolution to place the company into liquidation.
- File the necessary documents with Companies House.
- Notify creditors of the decision to liquidate.
- Cooperate with the liquidator and provide any requested information or documents.
Working through these steps with Mackay Goodwin’s guidance can help you meet your duties as a director and keep the liquidation running as smoothly as possible.
If you have any questions about the process, please call us.
Advantages of a CVL for a director and the company
There are several advantages of a CVL for the directors and shareholders of the company:
Director-led
A CVL is started by the directors rather than forced on the company by a creditor’s winding-up petition. That means you have a say in the timing and can nominate the licensed insolvency practitioner you work with, subject to creditor approval.
Speed
A CVL can often be started more quickly than a compulsory liquidation, which has to go through the court.
Creditor approval
In a CVL, the creditors of the company vote on the appointment of the liquidator and on the terms of the liquidation, which can provide a degree of certainty for the company’s stakeholders.
Limited liability
In most cases, directors and shareholders are not personally responsible for a limited company’s debts once it has been liquidated. There are exceptions, such as personal guarantees, overdrawn director’s loan accounts and any findings of wrongful or fraudulent trading, which we will talk through with you.
Cost-effective
A CVL is often less expensive than other types of liquidation, and the liquidator’s fees are usually paid from the company’s assets where funds allow.
Better returns for creditors
Acting early and in an orderly way may help preserve the value of the company’s assets, which can lead to a better return for creditors than a forced compulsory liquidation.