Creditors’ Voluntary Liquidation – CVL

This is the most common type of liquidation that may befall a company. At any moment there are usually between 12,000 and 14,000 companies on the UK register that are going through a creditors’ voluntary liquidation.

This is just over 50% of all companies in liquidation, the other remaining liquidations being split between Members Voluntary Liquidation (MVL) and compulsory liquidation.

Why would a company enter CVL?

Unfortunately, this type of liquidation is entered into by a company when it realises it is no longer able to pay its debts (either at all, or on time). This option may seem serious, but it is usually better than the alternatives. Its advantages are:

Minutes and Resolutions

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  • It often leads to a better liquidation for company directors, as they are involved
  • It often results in a better result for the company’s creditors – their loses will be lessened
  • Showing the directors have taken positive action to deal with the company’s insolvent position will appear better to the liquidator when they look at the director’s conduct
  • Employees and directors may be eligible for a claim from the Redundancy Payments Service

Continuing to trade or pay creditors when you know the company will not be able to pay all its debts is illegal and can result in the directors becoming personally liable.

Should a creditor (which could be HMRC trying to collect its taxes due) fail to be paid a debt owed in time, they could force the company into Compulsory Liquidation, preventing the company from being able to enter CVL.

If a company wants to be closed down and is solvent, it can either apply to be struck off the register or enter a members’ voluntary liquidation.

What is the cost?

It will vary by company, depending on the complexity, but a fairly standard company would be charged between £4,000 and £6,000 for creditors’ voluntary liquidation. This is taken from the company so long as there are sufficient funds to pay for it. Where this isn’t the case, it must be paid for by the directors.

What will happen?

The company’s directors will inform the shareholders that the company is no longer viable / able to pay its debts. They must also inform any creditors and consult an insolvency practitioner (whom will become the liquidator).

Once appointed and agreed by shareholders and creditors, the liquidator will then take control of the company, pay what it can to creditors and close down the company.

How long does it take?

A company can be taken over by a liquidator in as little as a few weeks, and then removed from the Companies House register 3 months later.  However, a relatively standard company should expect the process to take up to eight months from beginning the proceedings to it being removed from the Companies House register.

How to start CVL proceedings

Many companies will first contact an insolvency practitioner to get advice. Even though no liquidator is officially appointed yet, it can often be helpful and many companies offer the initial advice for free (hoping to become the liquidator that you choose to use). They may also call all the required meetings for you with the required notices.

The first steps are:

  • Convening a board meeting to authorise that a general meeting of shareholders be called, ensuring that the required notice rules for such a meeting are followed
  • At the general meeting, present two resolutions:

Inform Direct has template minutes and notices available for these meetings.

Usually on the same day, but within 14 days of the general meeting, a creditors’ meeting must be held, which must be advertised at least 7 days prior to the meeting, in:

  • the appropriate gazette, and also, in the case of a Scottish company, two local newspapers. The name and address of the insolvency practitioner should be stated; or
  • a place in the principal area of business where a list of the company’s creditors will be available.

The appointed insolvency practitioner will attend this creditors’ meeting and provide information about the company. This meeting doesn’t need to be a physical meeting unless specifically requested by:

  • 10% (or more) of the creditors – by value or number
  • At least 10 creditors

Provided that the resolutions pass at the general meeting, and at the creditors’ meeting 50% agree to the appointment of the liquidator then the company enters liquidation at 23:59 on the agreed date, at which point the liquidator will take control of the company.

Liquidation of the company

The liquidator will then work to close down the company. They will contact and ask for information from the company’s directors as they do the following:

  • Realise assets and sell them
  • Deal with any staff
  • Review creditor claims and settle them in the priority dictated by the Insolvency Act, loosely:
    • Liquidators’ costs
    • Secured creditors (e.g. company charges)
    • Preferential creditors (e.g. staff wages)
    • Unsecured creditors (e.g. suppliers, customers, HMRC)
  • Investigate the company’s affairs
  • Continue to meet company paperwork deadlines
  • Send progress reports to the creditors, shareholders and Companies House each year advising on progress (if the liquidation takes over a year)
  • Submit final paperwork to Companies House to remove the company from the register

Can I start a new company?

So long as you didn’t receive a Director’s Disqualification Order due to your conduct as a director of the liquidated company then you can be a director of another company.

Be aware that:

  • You can’t set up (or be involved with to some extent) a company same or similar name for five years: this is stipulated in the Insolvency Act – section 216
  • HMRC will be on the lookout for ‘phoenixing‘, the practice of closing down companies to create new ones void of the debt of the previous company

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