Creditors’ Voluntary Liquidations (CVL)

What is a Creditors' Voluntary Liquidation and what is the process. How can it help your company?
What is a Creditors’ Voluntary Liquidation and what is the process. How can it help your company?

This is the main Creditors’ Voluntary Liquidation page. We aim to provide the most comprehensive library of information and advice for Creditors’ Voluntary Liquidations. The process of growing this section is dynamic and will be kept up to date with current legislative changes and additions on Creditors’

Voluntary Liquidations. The information on this page is designed to help directors of companies, shareholders, creditors, employees and researchers who are interested in learning more about this form of voluntary liquidation. For free advice about a Creditors’ Voluntary Liquidation and whether it is a suitable solution for your company, please do not hesitate to contact us with any questions you have.

Please use the table of contents below to quickly access the parts of the page that you find of interest.

What is a Creditors’ Voluntary Liquidation (CVL) and what does it mean?

A Creditors Voluntary Liquidation is the statutory process for closing an insolvent company. A company becomes insolvent when it cannot pay its bills or its assets outweigh its assets. Once insolvent the directors’ obligations change. In the normal solvent company the director acts in the best interests of the shareholders and the company. When the company becomes insolvent it should cease to trade and may need to be closed.

As the company has creditors by definition and there may well be legal action taking place the directors may not be allowed to apply to have the company struck off. The only appropriate way to liquidate an insolvent company is via a Creditors Voluntary Liquidation.

As the company is a legal entity in its own right, the debts belong to it, not the individual directors.

Only a licensed insolvency practitioner can liquidate an insolvent company. Once the insolvent company has been liquidated the debts are wiped out along with the insolvent company.

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What is the Creditors’ Voluntary Liquidation process?

When a company becomes insolvent legislation takes over [Insolvency Act 1986]. The Insolvency Act 1986 provides the legal framework for the closure of an insolvent company. As the company is a legal entity in its own right the debts belong to it not the directors.

Generally the process to start the liquidation is initiated by the shareholders who call a meeting to pass a Special Resolution. The resolution proposed will be to close the company [Wind down] via c Creditors Voluntary Liquidation.

The shareholders vote on the resolution and there must be a majority in favour of the resolution.

Once the board resolution has been passed a liquidator is approached and engaged to act on behalf of the company’s creditors [Not the directors].

The liquidator calls a Meeting of Creditors and gains formal appointment by them to act on their behalf. The liquidator having been officially appointed by the creditors commences the liquidation of the company.

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What is the timeline of a Creditors’ Voluntary Liquidation?

The timeline of a Creditors’ Voluntary Liquidation is for the most part dependent on the complexity of the liquidation. There are statutory tasks and event that must take place within the overall liquidation timeline.

Instigating the Creditors Voluntary Liquidation can take as little as hours as just involves engaging a liquidator. From engaging the liquidator to calling a Meeting of Creditors may take another 2 weeks. So from engagement to the creditor meeting may take as little as 3-4 weeks.

The actual winding down of the company once the liquidator is engaged is more difficult to assess.

For example the liquidation of an exporting engineering company with 150 staff; complicated debtor book; huge HMRC debts and millions of pounds worth of plant and machinery is very likely to take a substantial to liquidate. Compare this with a one person limited company as employee; no assets, no debtor book and no HMRC debts.

What we can say is that even in the smallest of cases the actual liquidation may take 2-3 months as far as the liquidator is concerned. The directors’ role will cease however in 2-3 weeks.

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What are the advantages and disadvantages of a Creditors’ Voluntary Liquidation?

When faced with an Insolvent limited company directors are faced with the decision to enter into a Creditors’ Voluntary Liquidation. Most directors will not have faced this situation before so what is there to consider?

The key disadvantages of a Creditors’ Voluntary Liquidation can be summarised in the following brief overview:

  • Any company losses will be lost as the company will cease to exist in a Creditors’ Voluntary Liquidation
  • Monies owed to the directors may also be lost in a Creditors’ Voluntary Liquidation
  • The company brand will be lost in a Creditors’ Voluntary Liquidation
  • There are fees typically ranging from £3,000 to £7,000 paid from company assets
  • A report on the director’s management capability is provided to the Business Energy & Industrial Strategy

The key advantages of a Creditors’ Voluntary Liquidation can be summarised in the following brief:

  • A Creditors’ Voluntary Liquidation removes creditor pressure which can be almost unbearable
  • A Creditors’ Voluntary Liquidation allows control and provides time to prepare as opposed to the very real prospect of a forced liquidation by creditors
  • By engaging an experienced insolvency or turnaround practitioner sooner rather than later you can obtain advice to guide you through the legal insolvency maze
  • Creditors can at least get some resolution to the debt in a Creditors’ Voluntary Liquidation and may get some of the debt paid
  • As the debts belong to a company and not the directors a Creditors’ Voluntary Liquidation will wipe out the limited company debt without harming the personal credit rating
  • The chance of a disqualification with a Creditors’ Voluntary Liquidation is 4% as opposed to 14% with a compulsory liquidation
  • In the Creditors’ Voluntary Liquidation process you have the option to buy back the company assets

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What to expect from HMRC during a Creditors’ Voluntary Liquidation

HMRCs involvement in the Creditors’ Voluntary Liquidation will primarily be dependent on any pre-liquidation legal action. Another consideration will be the tax involved in the Creditors’ Voluntary Liquidation. For example HMRC take, none payment of VAT and PAYE/NIC more seriously than Corporation Tax. The reason is simple. With VAT the director is collecting money on behalf of HMRC and not passing it on so could be seen as fraud. With PAYE/NIC it may be the employee’s money being collected and not passed on.

Sometimes HMRC may have lien over company assets [The right to hold possession until the debt is paid]. Typically the liquidator will manage the situation with HMRC and arrive at an acceptable solution.

Generally however it is rare for HMRC to take action provided a Creditors Voluntary Liquidation takes place as they will leave the liquidator to act on their behalf.  In the vast majority of cases where HMRC is involved in a Creditors’ Voluntary Liquidation you can expect very little from HMRC once a liquidator is engaged.

It is also quite rare for HMRC to attend a Meeting of Creditors.

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How to select and propose a liquidator for a Creditors’ Voluntary Liquidation

A meeting with the shareholders must be called to obtain the shareholders’ approval (Minimum 75%). Without a majority approval the liquidation cannot proceed. Once the decision to liquidate has been made a liquidator must be selected. An insolvency practitioner becomes a liquidator when retained to act for the creditors of the insolvent company.

A director has to act in the best interests of the company so selecting the correct insolvency practitioner who will become the liquidator is a very important decision. The liquidator can be proposed by the director but is approved by the creditors. In addition others may propose their own liquidator.

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How to enter into a Creditor’s Voluntary Liquidation

Entering into a Creditors’ Voluntary Liquidation despite what the name implies is not the decision of the creditors. The shareholders of the insolvent company hold a meeting where a Special Resolution is passed agreeing to close the company [Wind up]. In order to pass the board resolution at least 75% of votes must agree to the resolution [S. 84 Insolvency Act 1986 and S. 283 Companies Act 2006].

The shareholders agreed to liquidate the company but it is the directors who must instigate the Creditors’ Voluntary Liquidation. The director will contact an Insolvency Practitioner who becomes the liquidator once engaged by the director. The liquidator will ask for a Statement of Affairs from the director. The Statement of Affairs provides a list of all company creditors, assets and debtors. The liquidator will write to each creditor and call a Meeting of Creditors.
A Meeting of Creditors [S. 98 Insolvency Act 1986] must take place within 14 days of the Board Resolution taking place. At the Meeting of Creditors the creditors formally appoint the Insolvency Practitioner to become the liquidator.

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How much does a Creditors’ Voluntary Liquidation cost?

Trying to identify the cost of a Creditors’ Voluntary Liquidation can be problematic. The challenge is that the costs are driven by a lot of variables which produce a very wide range of supposed costs.

First it is important to understand some of the basics. The fees and costs charged are controlled by one of the following:

  • Set by law and is on a sliding scale dependent on the work involved
  • Set by the court
  • Set by the creditors committee if there is one

The director/s can negotiate a fixed fee for the liquidation itself but if it is not it will be based on an hourly time cost. There are some hard costs for the liquidator to bear especially if there are assets to dispose of or debts to be chased. The nature of the assets themselves can sometimes cause an immediate cost where livestock is concerned for example.

Typically, though in addition to the above the costs in a Creditors’ Voluntary Liquidation are built around the following:

  • The time properly spent by the liquidator and his staff
  • The complexity of the case
  • Any exceptional responsibility borne by the liquidator
  • The effectiveness with which the liquidator carries out his duties

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What are the consequences of a Creditors’ Voluntary Liquidation for a director?

Although no director wants to see to their company liquidated, if the company cannot pay its debts on time and you are worried about wrongful trading accusations, a CVL could be the answer. The good news for directors is that in the vast majority of cases, the closure of the business aside, there are generally few adverse consequences to worry about.
If you have acted properly in charge of the company then a Creditors’ Voluntary Liquidation can bring a quick end to the creditor pressure you have been facing. Once the company has been liquidated there are also no restrictions on your ability to become the director of another company, although there are strict limitations on the re-use of the company name.

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How to communicate with Companies House during a Creditors’ Voluntary Liquidation

In the vast majority of cases it is the liquidator not the director who will communicate with Companies House in a Creditors’ Voluntary Liquidation.

There are exceptions of course:

  • Filing the shareholders agreement to go ahead with the liquidation
  • Ensuring the latest accounts are filed at Companies House
  • Avoiding being compulsory striking off from Companies House

The director may well be fulfilling his/her duties as an officer of the company but this will not normally be related to the Creditors’ Voluntary Liquidation. A Creditors’ Voluntary Liquidation involves a report on the directors so it is important to ensure as much of this work has been completed beforehand.

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How debtors are affected by a Creditors’ Voluntary Liquidation

When a limited company becomes insolvent and requires closing via a Creditors’ Voluntary Liquidation the company may be wed money. The companies or individuals who owe the insolvent company money are called debtors. The liquidator who once engaged acts in the best interests of the creditors of the company so will be pursued for the amount owed.
In the majority of cases debtors do pay up but some may use this as an excuse not to pay. This is a mistake as the liquidator has more powers than you may think. Liquidators will often have their own debt collection teams, solicitors on hand to advise and will chase up those debtors.

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What is the directors’ report in a Creditors’ Voluntary Liquidation

When a company becomes insolvent and has no choice but to close a Creditors’ Voluntary Liquidation is the most appropriate vehicle. A licensed insolvency practitioner is the only person allowed to conduct this legal process. There is nothing stopping a director from starting up again so the government wants to be sure this is safe to do so.

The liquidator has a number of duties as part of the Insolvency Act 1986 and amongst them is that of writing a report on the directors. The report is sent to the Department for Business, Energy & Industrial Strategy. The report includes commentary on the directors handling of the company leading up to and including the liquidation of the company.

Typically the liquidator will take an interest in:

  • Any money was taken by the director in the last 12-24 months
  • Did the money taken by the director have a bearing on the company’s insolvency?
  • Any preference shown to one creditor over another
  • Any major assets of the company being taken or moved
  • Any loans repaid in the last 12 months or so

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Even though the company is in a Creditors’ Voluntary Liquidation, can it be forced into Compulsory Liquidation?

A Creditors’ Voluntary Liquidation is a voluntary liquidation of an insolvent company at the choice of directors. A Compulsory Liquidation if forced on the directors by the company creditors. When both liquidation routes are chosen what happens? Who takes priority?

In the vast majority of cases a winding up petition starts the compulsory liquidation process. So, this acts as a final warning shot. This warning shot does offer a short space of time to act and start the Creditors’ Voluntary Process. It is extremely rare for a Creditors’ Voluntary Liquidation to have started for a creditor to press on with e compulsory liquidation. The compulsory liquidation will have substantial costs associated with it so why continue when the company is already being liquidated?

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How to create a Statement of Affairs for a Creditors’ Voluntary Liquidation

The Statement of Affairs is essentially a list of all the insolvent company’s assets [Anything tangible or intangible of value], liabilities including contingent liabilities [Money owed by the Company] and debtors [Money owed into the company]. Once prepared by the liquidator the Statement of Affairs is turned into a legal sworn statement signed by at least one director.

The Statement of Affairs in a Creditors’ Voluntary Liquidation will be summarised for the Creditors at the Meeting of Creditors.
Normally the appointed Liquidator will provide a number of documents to be completed by the director(s). Typically initially when first collected they may be collected informally on an Excel Spreadsheet or a Word Liquidation Questionnaire. However as the liquidation process progresses the Statement of Affairs becomes more formalised. Eventually the Statement of Affairs in a Creditors’ Voluntary Liquidation becomes precisely that – a statement, signed by at least one director.

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Why is the Directors’ meeting needed in a Creditors’ Voluntary Liquidation?

When a company becomes insolvent and no longer has a viable future the directors must decide what happens. The actual decision to close the company is made by the shareholders and 75% must agree. Equally though it is the directors who decide the action and so a directors meeting is called. The rules of the company will dictate who does what and when for the director’s meeting.

There are merits, good and bad for directors but when the company becomes insolvent they must prove they are acting for the creditors – not shareholders. The key decision to make is whether the company is insolvent.

There can be far reaching consequences when there are bank loans and the relief can be immense.

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Will the Directors need to attend further meetings with the liquidator after the Meeting of Creditors?

The Meeting of Creditors formally appoints the liquidator and at least one acting director must attend. The insolvent liquidation rules in Scotland may differ slightly but generally follow the principles of the Insolvency Act 1986.

In the majority of cases it is quite common for none of the creditors to attend.

Following the Meeting of Creditors in a Creditors’ Voluntary Liquidation the director’s role formally ceases. The director does however have a duty to cooperate with the liquidator. The liquidation may take many months and the liquidator may have questions relating to the company or the Statement of Affairs. In the majority of the cases however there is unlikely to be a need for the director to attend any more meetings. There of course exceptions to any rule.

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What is advertised in The Gazette about a Creditors’ Voluntary Liquidation?

When an insolvent company closes voluntarily using a Creditors’ Voluntary Liquidation the details must be advertised in the Gazette. The Gazette is the government’s insolvency register. There are three Gazettes that the insolvency details can be advertised in dependent on the geography of the company – Edinburgh, London and Belfast.

Advertised in the Gazette are the details of the company, where the meeting of creditors (S. 98 Insolvency Act 19860) will be held; the proposed and appointed liquidators and the contact details; Resolutions for the Winding up; distribution for creditors (Dividend) and the Date of the Final Meeting.

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When does the liquidator need an estimate for the Creditors’ Voluntary Liquidation?

When it is decided that a company is insolvent and no longer has a future it should be closed via a Creditors’ Voluntary Liquidation. To liquidate a company only an appropriately licensed insolvency practitioner can complete this process. Only a director can instigate a Creditors’ Voluntary Liquidation.  Typically the liquidator will require a copy of the Statement of Affairs (List of creditors, assets and debtors) of the company before they can provide an idea of the liquidation fee.

Initially a liquidator may provide an estimate of the liquidation fee until the company details have been confirmed. Most typically the liquidator must provide an estimate of the fees on engagement.

In the majority of cases, the liquidator will provide the estimate of the liquidation fee to be approved by the creditors.

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What are the powers of a liquidator in a Creditors’ Voluntary Liquidation?

In a Creditors’ Voluntary Liquidation a liquidator acts on behalf of the creditors. The powers of a liquidator in a Creditors’ Voluntary Liquidation are actually empowered by the Insolvency Act 1986. The liquidator is authorised to act by the Secretary of State and is the only person who can liquidate a company. Liquidators are usually accountants or lawyers who have gone on to train as insolvency practitioners.

Once engaged at the Meeting of Creditors their function is to sell the assets of the company so they can be paid first (By regulation). Once the fees have been paid for if there are sufficient funds the liquidator will distribute the proceeds amongst the creditors. The liquidator has the power to interpret the law and decide who gets paid what and when. The liquidator also has the power to make recommendations as part of the director’s report which goes to the Department for Business, Energy & Industrial Strategy. This report may have a direct influence over the future of the directors.

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What regulatory framework does the liquidator have to uphold?

Overall liquidators are authorised by the Secretary of State for Business, Energy & Industrial Strategy. This huge department has within it the Insolvency Service oversees the day to day management of its Insolvency Practitioners department. The Insolvency Service recognises various regulatory bodies called Recognised Professional Bodies (RPB). These RPBs provide the regulatory framework for liquidators.

This regulatory framework is reviewed each year by the Insolvency Service to ensure liquidators are monitored correctly and the processes in place are adequate.

 

There are laws too which affect the way in which a liquidator can act when liquidating. These laws and regulations protect creditor’s interests and provide a clear framework in which to work.

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Is my personal credit rating affected after a Creditors’ Voluntary Liquidation?

When a company becomes insolvent the directors can instigate a Creditors’ Voluntary Liquidation to close the company. A limited company is a legal entity and has its own rules and regulations so any company assets and debts belong to it not the director/s. The directors are officers of the company so their credit rating should not be affected at all.

The most common way a director’s personal credit rating can be affected after a Creditors Voluntary Liquidation is when a personal guarantee has been signed. Typically a lender and or bank can ‘call in’ the personal guarantee if they lose confidence. The liquidation does not have to take place and most lender or banking agreements have insolvency clauses within them. In effect when the company becomes insolvent the lender or bank can call in the ‘guarantee’ at any time.

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What happens with the books and records for the Limited company in a CVL?

When a company goes into liquidation all the company documents, books and records are handed to the company liquidator. These documents can include bank statements, invoices, sale of assets, agreements etc. The liquidator has a duty to provide a report on the director as to his/her capability as a director. The documents are used to provide evidence as to what did happen to the company and should support the Statement of Affairs.

The liquidator’s tasks are set out like a checklist of procedures which must be followed. The liquidator must provide a summary of a sworn Statement of Affairs at the Meeting of Creditors. In addition a summary of the history of the events leading up to the liquidation must also be provided.

This information provided answers the questions creditors want to understand.

Questions like:

  • How did the company become insolvent?
  • At what point did the company cease trading?
  • When did the directors first realise the company was insolvent?
  • Where any major assets disposed of in the last 3 months or so?
  • Did the directors have any personal guarantees for lenders or suppliers?
  • Did the directors lose any of their money?
  • What assets are remaining?

To provide this information accurately for the creditors the documents are checked.

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Will I receive minutes or a report following the Meeting of Creditors?

When an insolvent company is in the process of being liquidated via a Creditors voluntary Liquidation a Meeting of Creditors is called. The insolvency process is statutory process and set out in law (Insolvency Act 1986).

The responsibilities of the Meeting of Creditors including who does what, when, how and where are all clearly laid out.

A Key part of the Meeting of Creditors identifies the Chairman and who should take the Minutes (Notes of the meeting) and what happens to them.

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What is Creditors’ Voluntary Liquidation and Transfer of Undertakings Protection of Employment (TUPE)?

Clearly a Creditors’ Voluntary Liquidation threatens the continuity of the business and the jobs of the employees who work there. However, it is not uncommon for a potential buyer to be found (sometimes an existing director or shareholder) for the insolvent company’s assets who wants to transfer existing staff to the new business. For this reason, TUPE regulations (Transfer of Undertakings Protection of Employment Rights) were introduced to ensure employees are not disadvantaged by the transfer.

TUPE regulations have implications for both the transferring company and the new employer and apply to any size of company. This can be a complicated area of law so it’s certainly something company directors should consider carefully before they decide to liquidate.

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How to explain the Insolvency Act (1986) relating to a Creditors’ Voluntary Liquidation

‘The Insolvency Act 1986’, as the name suggests provides the legal framework for insolvent individuals and companies. As part of that insolvency framework directors are allowed to close insolvent companies which have no financial future. A Creditors’ Voluntary Liquidation is the appropriate vehicle to wind down and dissolve an insolvent company.

The Act itself is a large piece of legislation and significant portions of this law governs the Creditors’ Voluntary Liquidation.

In brief the Insolvency Act 1986 legislation provides the framework for:

  • What the shareholders must do
  • Who can instigate the liquidation and who cannot
  • What directors must do and must not do when the company becomes insolvent
  • What the Liquidators do and must not do in the liquidation process
  • What the creditors’ priority and entitlements are in liquidation
  • What the employees’ rights are in the liquidation process
  • What fees and costs are allowed in the liquidation

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How does the Third Party Insurance Act come into effect for a Creditors’ Voluntary Liquidation?

A Creditors’ Voluntary Liquidation is the closure of an insolvent company. When a liquidator is appointed by the creditors the liquidator will liquidate the assets of the insolvent company. The assets are turned into cash and distributed on a pro-rata basis (Pari Pasu) to the creditors.

The Third Party Insurance Act (1930) provides the right for an injured party to continue action against the closing company’s insurer. But another important part of the Act is to ring-fence the injured party funds.

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How is a company tenancy affected by a Creditors’ Voluntary Liquidation?

A limited company is a legal entity in its own right so any assets and liabilities belong to it not the directors. So, when a company enters into a rental agreement with a landlord it is the company that is the tenant. The directors may have signed personal guarantees (though not in every case) but it is the company that is the main debtor (Owing the rent).

In the normal day to day trading of the company the directors have control and say over the company tenancy agreement. When a company becomes insolvent and decides to close with a Creditors’ Voluntary Liquidation things change.

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Can a Creditors’ Voluntary Liquidation stop a Personal Liability Notice

Whereas directors in some circumstances can be made personally liable for company tax failings a Personal Liability Notice is associated with non-payment of National Insurance. A director or any named individual can be personally accountable for defrauding the National Insurance Fund or deemed being criminally negligent.

HMRC may believe an offence has taken place such as fraud and will pursue the offenders using the full force of the law. HMRC has specialised departments that deal with Personal Liability Notices based in London but cover the whole of the UK. A PLN is not issued lightly.

A specific act was enacted to tackle any potential in 2009 and forms part of the Social Security Act 1998.

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Can a Creditors’ Voluntary Liquidation stop a HMRC Notice of Requirement (NoR) Security Bond

If HMRC is owed VAT/PAYE/N.I.C. and believes the company may be, or about to become insolvent and cannot or will not pay the taxes due. HMRC can issue a Notice of Requirement for the company to provide a Security Bond. The Security Bond request is usually for the amount at risk or calculated on the basis of how the relevant tax is paid. In addition the amount at risk to HMRC can also be attached as a personal liability of any named individual within the company if the company is not closed.

An appeal can be made against the Notice of Requirement Security Bond but a deadline to do so is provided too. The pressures on directors in these circumstances can be enormous and they must seek professional experienced insolvency help immediately. An HMRC Notice of Requirement is a specialised area and your accountant or civil lawyer is unlikely to be able to help.

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What are the consequences of a Creditors’ Voluntary Liquidation for a Shareholder

A limited company is a legal entity in its own right and is owned by the shareholders. The shareholding of a limited company will determine the voting control, equity and share of profits within the company. A Creditors’ Voluntary Liquidation is the formal appropriate process for closing an insolvent company.

It is the shareholders who hold an initial meeting to agree that the company should be closed. In order for a Creditors’ Voluntary Liquidation to be initiated there must be a majority vote in favour, but what % is needed? What happens if the there is an equal shareholding?

If the decision to liquidate the company is agreed by all shareholders, the Creditors’ Voluntary Liquidation can go ahead.
In the vast majority of cases the directors will also be the shareholders too what if there are differing views over the future of the company? There may be repercussions as a director but generally shareholders pass through the liquidation process unscathed.

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Why is a Shareholders meeting required in a Creditors’ Voluntary Liquidation?

A Creditors’ Voluntary Liquidation shareholders’ meeting is required for many reasons.

The process is normally instigated by the directors of the company. Whilst the director has the right to instigate the Creditors’ Voluntary Liquidation (as he/she is accountable) the shareholders hold the voting rights to enable the decision. The shareholders must pass a special resolution agreeing to voluntarily liquidate the company.

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What happens if there is a shareholders’ dispute in a Creditors’ Voluntary Liquidation?

A Creditors’ Voluntary Liquidation shareholder dispute is more common than you may believe. A Creditors Voluntary Liquidation is the statutory closure of an insolvent company, but not all the shareholders may agree on its future. The most common dispute is where one shareholder may think they can save the company and the other believes otherwise.

The outcome of any shareholder dispute in a Creditors Voluntary Liquidation will depend on the voting shares allocated to the director/s. The shareholders must have 75% of the voting rights in order for the Creditors’ Voluntary Liquidation to proceed.

Where there is a 50/50 share split and both shareholders, who may also be directors, disagree, a Creditors’ Voluntary Liquidation cannot take place. Simple arbitration may work but the memorandums & Articles of Association [M&As] may provide the ultimate solution. The M&As layout the rules and regulations of the company and may dictate what happens in any shareholder dispute.

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Creditors’ Voluntary Liquidation Checklist for Creditors

A Creditors’ Voluntary Liquidation is the statutory process for closing an insolvent company. From a creditor’s perspective what are your rights and what should you expect? Although the name suggests otherwise you as the creditor cannot instigate a Creditors’ Voluntary Liquidation.

As a creditor it can often come as a shock to learn a trusted customer is entering into liquidation and can often affect your own financial position. The good news is once a liquidator is engaged they are acting on the creditor’s behalf not the directors. The liquidator must act on the creditor’s behalf by law and you as a creditor have rights and an element of control.
Usually it will be the size of the debt that will dictate how much interest or involvement the creditor has in the liquidation. Very often a small creditor will not attend the Meeting of Creditors and not even bother returning a Proxy vote.

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What are the Creditors’ Rights during a Creditors’ Voluntary Liquidation?

While the name may suggest otherwise, a creditor cannot instigate a Creditors’ Voluntary Liquidation. The creditors, however, do have rights throughout the insolvency process.

First of all, a creditor must make a claim to register with the liquidator. Normally the liquidator will write to the creditor with the claim form to be completed. The Statement of Claim once returned will register the creditor with the liquidator.

A Meeting of Creditors must be called with 14 days of the Shareholders Board resolution to close the company. Normally this takes place on the same day. The creditors are invited to attend the meeting at least 7 days prior the Meeting of Creditors taking place. The creditors are also entitled to see a list of all creditors of the company.

Creditors are allowed to view a summary of the Statement of Affairs at the Meeting of Creditors. The Statement of Affairs must be signed and sworn by a director of the company.
The Creditors are asked to vote to approve the Liquidator and can even create a committee to control liquidation costs.

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What are the consequences of a Creditors’ Voluntary Liquidation for a secured and unsecured Creditor

Once a company enters into a Creditors’ Voluntary Liquidation the consequences for secured and unsecured creditors can be quite dramatic. The company assets available will determine just how dramatic the consequences will be.

Once an insolvent company is being liquidated not all the creditors can be paid. By definition to be insolvent the company cannot pay its bills when due. A liquidator is approved by the creditors to act on their behalf when liquidating the company assets. Once the assets have been liquidated [Realised] for the benefit of creditors a distribution to creditors called a dividend is made. The dividend is allocated pro rata to the size of the debt [Pari Pasu].

The law [Insolvency Law 1986] sets out precisely who gets paid what and when. As part of this process secured creditors are paid first as they have secured their lending on company assets. There is a priority order of preference for the creditors and unsecured creditors are at the back of the queue to an extent. The law did step in to provide some protection for unsecured creditors to stop secured creditors taking everything for example.

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How do creditors choose a liquidator between competing Insolvency Practitioners?

Only a licensed Insolvency Practitioner can liquidate a limited company. An Insolvency Practitioner becomes a liquidator when they are formally appointed by the creditors.

In practice creditors are unlikely to recover all of their money owed as the company is by definition insolvent. In addition in the vast majority of cases unsecured creditors are very unlikely to get anything if there are few assets. As all liquidator hourly rates are different it is probably wise to consider what the liquidator is being paid.

Another key consideration may well be the size of the Insolvency Practitioner’s practice. Having an office in every major town may be handy but those overheads must be paid from somewhere.

You should also try Googling the liquidator to see if there are complaints online. Are there testimonials to read? Can you speak to past clients? These may all be key considerations.
The expertise of the Insolvency Practitioners is very important as like any business the experience levels will vary. Some Insolvency Practitioners specialise in one area more than another for example.

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What happens at the creditors’ meeting during a Creditors’ Voluntary Liquidation

When a company goes into liquidation creditors will be written to and invited to a Meeting of Creditors. But what happens at the creditors meeting? What is provided at the creditors meeting when a company enters into Creditors’ Voluntary Liquidation? At the creditors meeting an overview of what has taken place with the insolvent company. In addition at least one acting director will attend to answer questions.

Knowing what a creditor’s rights are at a creditors meeting in an insolvent company liquidation could prove beneficial. The whole company insolvency process can be confusing but who do creditors turn to? How does the liquidator get appointed? The creditor’s meeting is formally called a Meeting of Creditors but what actually happens?

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Who is allowed to attend a Meeting of Creditors?

A company enters into voluntary insolvent liquidation with a Creditors’ Voluntary Liquidation. Despite what the name may lead you to believe it is not the creditors who instigate the liquidation it is the director/s. At least 75% of the shareholders must vote in favour of liquidation before the liquidation can go ahead.

Once the decision to liquidate has been made an insolvency practitioner is engaged who becomes the company liquidator once approved by the creditors. The liquidator acts on behalf of creditors not the director/s so the decision is an important one.

A liquidator is finally appointed by the creditors and calls a Meeting of Creditors.

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Does the Meeting of Creditors need to be held at a specific place or time?

When a company enters into a Creditors’ Voluntary Liquidation a liquidator is proposed who will act for the creditors. The creditors get a chance to vote on the proposed liquidator at a Meeting of Creditors which is called and arranged by the liquidator.

The liquidator will write to each creditor providing details of where the meeting will be held. Legislation sets out where the Meeting of Creditors will be held.

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What happens if I can’t attend the Meeting of Creditors in a Creditors’ Voluntary Liquidation?

When an insolvent company enters into a Creditors’ Voluntary Liquidation, a Meeting of the Creditors is called. If you cannot attend the Meeting of Creditors what happens?

All the insolvent company creditors must register as a creditor in the first place and make a Statement of Claim. Once you have been acknowledged as a creditor you will be written to with the date, place and time of the Meeting of Creditors.

In the same letter you will be provided with a Proxy Vote. In effect you can still vote to appoint the proposed liquidator [Or not]. The votes are calculated based on the proportionate amount of debt your voting rights hold.

A Statement of Affairs, which is provided 14 days before the actual meeting date, is summarised and presented at the Meeting of Creditors. In addition a summary is provided of the company history leading up to the liquidation with the director in situ.

If you do not attend the Meeting of Creditors, you will not have the chance to question the director or view this information presented at the meeting.

As a creditor, however, the liquidator must write to you providing a report of what happened at the Meeting of Creditors within 28 days of the meeting.

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When does the notice of the Creditor’s meeting need to be advertised in The Gazette?

The Gazette is the Government’s register of all statutory company and individual insolvency events. Depending on where the limited company is registered will decide where the Creditors’ Voluntary Liquidation is advertised.

Also, banks and financial institutions use the Gazette to provide them with insolvency indicators so obtain alerts.

The appointed liquidator must complete many tasks which must be registered in the Gazette.

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What is a liquidation committee?

When an insolvent company is liquidated either by a Creditors Voluntary Liquidation or Compulsory Liquidation there are naturally creditors. By definition for a company to be insolvent creditors cannot be paid. Once a liquidator is engaged they take over the winding down of the company. Where there are very few assets then a Liquidators Committee may not be required however it is the creditors who will decide. In these cases it is rare for the unsecured creditors to even attend the Meeting of Creditors let alone form a committee.

The Liquidation Committee can have quite an impact on the liquidation itself. The committee can control costs, complain about the liquidator’s actions and even have the liquidator replaced.

In the vast majority of cases, there are very few assets to realise so nothing for the committee to do. The work is unpaid so unsurprisingly not many creditors volunteer.

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What are the powers and functions of a liquidation committee?

With an insolvent liquidation a liquidator is appointed by the creditors at the Meeting of Creditors. In some circumstances the creditors may feel it is necessary to form a committee to control the fees and costs charged by the liquidator. In some extreme examples the liquidation committee may disapprove of the liquidator and can request the liquidator be dismissed and replaced. An insolvency practitioner becomes a liquidator once engaged and they have varying degrees of experience and some may charge more than others.

The liquidation committee also has the power to renegotiate any fixed fee, cost basis and realisations of the assets. Ultimately, it is the liquidation committee that can decide what is charged. If the appointed liquidator disagrees the liquidation committee can apply to the Court to overrule the liquidator.

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What are the Creditors’ duties during a Creditors’ Voluntary Liquidation (CVL)?

The duties of creditors in a Creditors’ Voluntary Liquidation are not duties as such but are more rights as opposed to an obligation. As a creditor you may have lost substantial amounts of money so it is in your interest to get involved. In order to become a creditor in the first place you must first register as a creditor and complete a Statement of Claim with the liquidator. This may require proof such as unpaid invoices and evidence of goods delivered for example.

Once you are registered as a creditor you will be invited to a Meeting of Creditors and notified at least 7 days before the meeting takes place. The meeting will be geographically convenient for the creditor majority. At the Meeting of Creditors you can:

  • Vote on the appointment of the liquidator
  • Ask questions of the liquidating company director/s
  • View a sworn Statement of Affairs [A list of the company assets and liabilities]
  • View a history of the liquidating company up to its liquidation
  • View a summary of all claims of all creditors

If you cannot attend the Meeting of Creditors or, do not want to attend, you can vote by Proxy on the liquidators’ appointment. A report of what happened at the Meeting of Creditors will be sent within 28 days of the meeting taken place.

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What are the differences between an ordinary and special resolution in a Creditors’ Voluntary Resolution?

Although no director wants to see to their company liquidated, if the company cannot pay its debts on time and you are worried about wrongful trading accusations, a Creditors’ Voluntary Liquidation could be the answer. The good news for directors is that in the vast majority of cases, the closure of the business aside, there are generally few adverse consequences to worry about.

By law [Insolvency Act 1986] and as part of the liquidation process the liquidator must provide a report on the director’s ability to act as a director of a future company.

If you have acted properly in charge of the company then a Creditors’ Voluntary Liquidation can bring a quick end to the creditor pressure you have been facing. Once the company has been liquidated there are also no restrictions on your ability to become the director of another company, although there are strict limitations about the re-use of the company name.

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What is a Creditors’ Voluntary Liquidation proxy form?

In an insolvent company liquidation procedure creditors are invited to a Meeting of Creditors. At this meeting the creditors are asked to vote on the appointment, or not of the liquidator.

A Proxy form as far as the law [Insolvency Act 1986] is concerned is, a person [The Principal] giving the authority, for another person [The Proxy Holder] to attend a meeting or speak on their [The Principal] behalf.

In a Creditors’ Voluntary Liquidation where a creditor cannot attend the Meeting of Creditors they can respond to the liquidator by proxy vote. The net effect is the creditor still has a vote in the appointment of the liquidator whether they attend the Meeting of Creditors or not.

Proxy voting forms may be faxed and are still valid provided the time constraints are met.

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What is a Creditors’ Voluntary Liquidation proxy form?

In an insolvent company liquidation procedure creditors are invited to a Meeting of Creditors. At this meeting the creditors are asked to vote on the appointment, or not of the liquidator.

A Proxy form as far as the law [Insolvency Act 1986] is concerned is, a person [The Principal] giving the authority, for another person [The Proxy Holder] to attend a meeting or speak on their [The Principal] behalf.

In a Creditors’ Voluntary Liquidation where a creditor cannot attend the Meeting of Creditors they can respond to the liquidator by proxy vote. The net effect is the creditor still has a vote in the appointment of the liquidator whether they attend the Meeting of Creditors or not.

Proxy voting forms may be faxed and are still valid provided the time constraints are met.

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How landlords are affected by a Creditors’ Voluntary Liquidation

When a company enters into a voluntary liquidation such as a Creditors’ Voluntary Liquidation, by definition, not all the creditors will get paid. The company may have a business premises and have a rental agreement. These agreements can vary greatly, from rolling monthly notice agreements to lengthy long term lease agreements. These agreements are usually made in the limited company’s name. As the company once liquidated no longer exists the landlord is likely to become a key creditor.

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What are forms used in a Creditors’ Voluntary Liquidation?

A Creditors’ Voluntary Liquidation is a formal statutory process for liquidating an insolvent limited company. A limited company is a legal entity in law [Companies Act 2006] and has its own rules [Memorandum and Articles of Association] which describe how the company can be managed and owned.

A liquidator is engaged by the directors to liquidate the company having been given the right to do so by the shareholders. Both stages require paperwork to be completed.

Once engaged by the director a Meeting of Creditors is called where a summary of a sworn Statement of Affairs is provided.

There are over seventeen different forms involved in the Creditors’ Liquidation Process following the liquidator’s appointment. These forms are available from Companies House and The Insolvency Service.

You will be pleased to know that it is the appointed liquidator’s role to complete all of these on your behalf with relatively minor input at key stages.

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