Creditors’ Voluntary Liquidation (CVL)

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• Circumstances Leading to CVL
  • Accumulation of unsustainable debts: The company has amassed debts that it cannot repay, leading to creditor pressure and potential legal action.
  • Declining financial performance: The company’s financial position has deteriorated significantly, with ongoing losses and diminishing cash flow.
  • Lack of viable rescue options: Despite efforts to turnaround the business, there are no feasible options for restructuring or refinancing to restore solvency.
• Steps Involved in CVL
  1. Board Resolution: The directors convene a board meeting to propose placing the company into liquidation and calling a meeting of shareholders to pass a resolution for winding up.
  2. Shareholder Meeting: A formal meeting of shareholders is held to pass a special resolution to wind up the company and appoint a liquidator.
  3. Appointment of Liquidator: An insolvency practitioner is appointed as the liquidator to oversee the winding-up process, realising assets, and distributing proceeds to creditors.
  4. Notifying Creditors: The liquidator notifies creditors of the company’s liquidation and invites them to submit their claims.
  5. Realisation of Assets: The liquidator identifies and sells the company’s assets to generate funds for distribution to creditors.
  6. Distribution to Creditors: Funds realised from asset sales are distributed to creditors in accordance with the statutory order of priority.
  7. Final Report and Dissolution: Once all assets have been realised and distributed, the liquidator prepares a final report detailing the liquidation process and applies to Companies House for the company’s dissolution.
• Benefits of CVL
  • Controlled winding-up process: The company can initiate the liquidation voluntarily, maintaining a degree of control over the process and minimising the risk of compulsory liquidation initiated by creditors.
  • Protection for directors: By taking proactive steps to wind up the company, directors can mitigate personal liability for company debts and demonstrate their commitment to fulfilling their duties.
  • Closure and relief: CVL provides a clear pathway for closing down the business in an orderly manner, providing closure for stakeholders and allowing directors to move on from the failed venture.
  • Potential for future entrepreneurship: Directors can potentially pursue new business ventures without the burden of past liabilities once the company has been liquidated.