When a company is heading towards insolvency, it is important to act quickly. When a company is insolvent, liabilities are in excess of remaining assets, so that creditors can not be paid in full the money owed to them. In this situation, creditors can petition to the Court for a winding up order to be delivered against the insolvent company. In this case, company directors could be personally liable for company debts. The effects on a business could be devastating, so it’s important for businesses that are unable to pay their debts as they are due, or see no viable future, to take a voluntary approach to liquidation.
Creditors’ Voluntary Liquidation Processes
Under the CVL route, company directors or shareholders voluntarily liquidate the business, appointing a licensed insolvency practitioner as liquidator to orderly wind up the company. It is then the responsibility of the liquidator to release and distribute the company’s assets, first to creditors, then to shareholders. Once all debts are resolved and remaining assets are distributed fairly, the company can then be struck off the register.
Whilst an insolvency practitioner acts as liquidator and takes over company affairs, as a CVL is a director led liquidation, there are still certain procedures that they must follow. Firstly, once a liquidator is proposed, directors must give notice of this to the company’s creditors. If creditors are unhappy with the choice of liquidator proposed, they then have the opportunity to appoint a different liquidator.
Creditors are entitled to ensure that they feel the liquidator will deliver regular communications and act in their best interests.
What a CVL means for directors and shareholders
Creditors’ Voluntary Liquidations state that in addition to sending notice of their intention to enter into a CVL, directors and shareholders must also provide a statement of affairs to creditors.
Once a liquidator is approved by creditors and officially appointed, all powers of directors will then cease. The liquidator then takes responsibility for the day to day operation of the business whilst they wind up affairs. If, during the process, the insolvency practitioner finds that company directors are guilty of wrongful or fraudulent trading in relation to the company’s insolvency, then they will report to the Court.
Once a company is placed into a CVL, the process is then completed by the liquidator in the interests of creditors, before any remaining assets can be distributed to shareholders, should there be any.
Is a CVL right for you?
If you are a director or shareholder of a company that is struggling to pay creditors when debts fall due and you cannot see a way to ensure that the business remains viable, then a CVL may well be in your best interests. Remember, it’s important to act quickly before a compulsory liquidation is unavoidable.
For a free initial consultation, tailored to suit your company, call BEACON on 02380 651441 or contact us here. We are here to advise you on the best path forward and guide you through the processes of liquidation.