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What is the process of creditors voluntary liquidation (CVL)

21st April, 2023 / Posted in

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What is the process of creditors voluntary liquidation (CVL)

The liquidation begins when the shareholders vote to liquidate the company and appoint a liquidator. Until that resolution passes, the director controls the company. There are a few formalities to complete before liquidation.

Step 1: Directors’ Meeting

The first step in a Creditors Voluntary Liquidation is for the directors of the company to hold a meeting to propose the liquidation. According to the Insolvency Act 1986, the directors must consider the financial position of the company and determine that it is insolvent, or likely to become insolvent. If the directors believe that a CVL is the best course of action, they must call a meeting of the company’s shareholders.

Step 2: Shareholders’ Meeting

At the shareholders’ meeting, the shareholders will vote on a resolution to wind up the company voluntarily and appoint a licensed insolvency practitioner as liquidator. The Insolvency Act 1986 specifies that this resolution must be passed by a 75% majority of the shareholders. The liquidator must be a licensed insolvency practitioner who is independent of the company.

Step 3: Notification of the Liquidation

Once the resolution has been passed, the liquidator must be notified and must take control of the company’s affairs. The liquidator will then notify the Registrar of Companies, the company’s creditors, and any other interested parties of the liquidation. The liquidator will also advertise the liquidation in the London Gazette.

Step 4: Statement of Affairs

Within 14 days of their appointment, the liquidator must prepare a statement of affairs, which provides details of the company’s assets, liabilities, and creditors. This statement must be sent to the Registrar of Companies, the company’s creditors, and any other interested parties. The statement of affairs must be accurate and complete, and the liquidator may be held liable if it is found to be incorrect.

Step 5: Investigation of the Company’s Affairs

The liquidator must conduct a thorough investigation of the company’s affairs, including its financial position, its business operations, and the conduct of its directors. The liquidator has the power to require the directors and officers of the company to provide information and documents. If the liquidator uncovers any evidence of misconduct by the directors, they must report it to the appropriate authorities.

Step 6: Sale of the Company’s Assets

The liquidator will sell the company’s assets, including its stock, property, and equipment, to raise money to pay off the company’s creditors. According to the Insolvency Act 1986, the liquidator must sell the assets for their fair market value, and must obtain the best price reasonably obtainable. The liquidator may sell the assets individually or as a whole.

Step 7: Distribution of the Proceeds

Once the company’s assets have been sold, the liquidator will distribute the proceeds to the company’s creditors in a prescribed order of priority.  The order of priority is as follows:

  1. Secured creditors with a fixed charge on assets.
  2. Preferential creditors, including employees and the government for certain taxes.
  3. Secured creditors with a floating charge on assets.
  4. Unsecured creditors.

The liquidator will pay each creditor in full within their respective category before moving on to the next category. If there are any funds remaining after all creditors have been paid, the liquidator will distribute them to the shareholders.

Photo of Robert Moore

by Robert Moore

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