Creditors Voluntary Liquidation (CVL)
The shareholders of a company can resolve to place the business into CVL if it is unable to pay its debts. The liquidation process is designed to effectively end the life of a business.
The process
The CVL process starts off with the directors establishing that the company cannot pay its debts and deciding that a meeting of shareholders and creditors should be called to place it into liquidation.
Notices of the meeting are then sent out to members and creditors. Creditors must be given 7 days notice (plus posting time) of the meeting but it is best practice to give 14 days notice. The meeting is also advertised locally and nationally.
The business usually ceases to trade following the directors' meeting. It may continue up to the meeting if it is in the interests of creditors to do so and if ongoing liabilities are paid in full. If the business is to continue to trade advice should be sought to ensure that the directors are not prejudicing their personal position (insolvent trading).
In the lead up to the meetings a statement of affairs and a report on the events leading up to the liquidation is prepared including statutory and financial information. The former of these must be sworn in front of a solicitor or commissioner for oaths.
An insolvency practitioner usually assists in the preparation of the documentation as failure to comply with the legislation can result in a fine and or imprisonment of the directors.
A meeting of shareholders is then held followed by a meeting of creditors. A director of the company acts as chairman at this meeting but it is usually conducted by the Insolvency Practitioner. If creditors attend this meeting they have the opportunity to ask questions of the director and raise concerns.
The creditors may then appoint their own liquidator or, more usually, ratify the shareholders' decision.
Once appointed, the liquidator takes control of the assets and sells them for maximum value. If there are funds left after costs and paying any chargeholder then this would be distributed to creditors.
An annual report will be prepared and annual meeting held to 'receive' the report. In the majority of cases no creditor attends these meetings.
The liquidator must investigate the affairs of the company to establish if there are any suspicious transactions and must also report on the conducts of the directors to the DTI for them to consider if they should be prosecuted or disqualified.
Once the liquidation is complete then a final meeting is held and following this, after 3 months the company is dissolved.
