A Creditors’ Voluntary Liquidation (CVL) is a process allowing the directors of a limited company, after a shareholders vote, to voluntarily close the company via liquidation.

It is routinely chosen by directors as a preferable alternative to being forced into a compulsory liquidation process via a winding up petition.

The Creditors’ Voluntary Liquidation process must be carried out by a licensed insolvency practitioner.

Once the insolvent company has been liquidated the debts are wiped out along with the limited company itself.

Creditors Voluntary Liquidation

What is a Creditors Voluntary Liquidation ?

Insolvent voluntary liquidation, also known as creditors voluntary liquidation, is when a company’s own shareholders vote to wind it up. Once directors have concluded that the logical decision is to close down the company, a 75% majority is required to instigate the process.

While protecting the company from further legal action, the choice to liquidate places the company in the hands of an insolvency practitioner (IP). The IP will close down the company and sell any assets to seek the best return for company creditors, in order of priority.

What Does it Mean when a Company Goes into Voluntary Liquidation?

Here’s we’re assuming that we’re talking about insolvent liquidation.

Going into voluntary liquidation means you’ve reached a point where you feel the company cannot continue. You’re either about to be forced into compulsory liquidation by creditors, or you’ve simply recognised the company is insolvent and has no future.

At that point, choosing liquidation means you’re taking steps to close the company via the formal legal procedure, you’re going to bring in professional help, and you’re going to get creditor pressure off your back.

Once the Insolvency Practitioner (IP) has taken over, your role as director will cease, though you will be requested to provide certain pieces of information to the IP as the process unfolds.

What’s the Cost of a CVL?

Some company directors, aware of the businesses situation, delay putting their company into creditors’ voluntary liquidation for fear of not being able to pay for it. The important point to remember is that, assuming there are some company assets, any costs are taken from the liquidation itself. The only time directors would have to pay for the liquidation out of their own pockets is where  the company assets fall below the basic cost of the liquidation, which is about £5000 + VAT. Obviously, this will vary depending on the complexity of the case.

Creditors Voluntary Liquidation Process

Below is the process for conducting a Creditors’ Voluntary Liquidation.

(1) Appointing an Insolvency Practitioner (Liquidator)

Once you have discussed the possible liquidation with an insolvency expert to make sure it is the right decision for you, the next step is to appoint a liquidator. In a Creditors’ Voluntary Liquidation, the shareholders will appoint and pay for an authorised insolvency practitioner to act as the liquidator.

The process of actually appointing (engaging) a liquidator takes no more than an hour or two. This appointment will then need to approved by the creditors at the creditors’ meeting.

This usually takes place three weeks after the initial engagement.

(2) The Meeting of Directors

The directors must hold a meeting to confirm that the company is insolvent and that steps are being taken to place the company into a CVL.

A meeting of the company directors can be called straight away. This process can take place particularly quickly if it’s a small company with only a handful of directors.

(3) Consent to Short Notice

If 90 percent of the company’s shareholders sign a ‘Consent to Short Notice’, the shareholders’ meeting can be called and held immediately.

If the shareholders do not agree, a notice period of 14 days will need to be given before the shareholders’ meeting can be held.

(4) The Shareholders’ Meeting

The shareholders’ meeting will normally take place immediately before the creditors’ meeting. If the shareholders agree to the liquidation, they can then confirm the directors’ choice of the liquidator.

(5) The Creditors’ Meeting

After the shareholders’ meeting, there must be a creditors’ meeting, which is often held on the same day.

Creditors must receive a statutory minimum of 7 days notice of the meeting, although within 14 days is considered to be better practice. Often creditors will receive 3-4 weeks’ notice.

(6) Company’s Assets are Liquidated

At this point, the liquidation of the company can go ahead. From start to finish the time it takes to complete the CV sale of assets can vary dramatically depending on the complexity of the case.

However, in the vast majority of cases (around 80 percent), we would expect the process to take between 2-3 months. In more complex cases it can take as long as 12-24 months.

Appointment of a Liquidator in a CVL

Once the decision to liquidate has been made a liquidator must be selected for any Creditors’ Voluntary Liquidation. 

The liquidator can be proposed by the director but is approved by the creditors. In addition others may propose their own liquidator.

What is the Benefit of a CVL Rather than Compulsory Liquidation?

Here we outline the advantages and disadvantages of a Creditors’ Voluntary Liquidation process.

Advantages

  • Directors benefit from more control than a compulsory process
  • Less risk of wrongful trading
  • Creditor pressure is instantly removed
  • Directors have the possibility to buy back assets

What’s the Timeline of CVL?

A CVL is a fast-paced and deadline-driven procedure. The first step is to call a shareholders’ meeting. Shareholders must be given 14 days’ notice of the meeting. However, the meeting can be held at shorter notice if 95% of shareholders are in agreement.

The day after the shareholders’ meeting where the company was wound up and a liquidator was nominated, the company directors have seven days to deliver a notice to creditors, requesting their vote on the resolutions passed.

The decision date or meeting on these resolutions should be no earlier than three days after the notice is delivered and no later than 14 days after the shareholders’ meeting.

Rights of Employees in a CVL

Clearly a CVL threatens the continuity of the business and the jobs of the employees who work there. For this reason, TUPE regulations (Transfer of Undertakings Protection of Employment Rights) were introduced to ensure employees are not disadvantaged by the transfer.

Why is a Shareholders Meeting Required?

A 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.

Creditors’ Rights in a CVL Process

The creditors are entitled to see a list of all creditors of the company and to view a summary of the Statement of Affairs at the Meeting of Creditors. They are asked to vote to approve the Liquidator and can even create a committee to control liquidation costs

Creditors are paid by order of priority as a dividend from the sale of the company assets.

Registered creditors will be invited to a Meeting of Creditors and notified at least 7 days before the meeting takes place. The meeting will be online unless specific circumstances require a physical meeting.. At the Meeting of Creditors they 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

Creditors who do not want to attend  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

What Happens to Directors in a Creditors’ Voluntary Liquidation?

Director’s should be aware that once a liquidator has been appointed, the directorial conduct in the period leading up to the insolvency will be under scrutiny.

If it is found that the director did not act in the best interests of creditors, or behaved in a manner not strictly legal,  he may face accusations of wrongful trading, and there is the potential to be held personally liable for part or all of the company debts.

If you’re a company director, we can also advise you on where liquidation would bring with it director’s redundancy payment.

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