A Creditors Voluntary Liquidation (CVL) is a procedure initiated by the directors of a company to voluntarily bring about the end of the business when the company is insolvent. The process is undertaken by a Licensed Insolvency Practitioner who acts as Liquidator.
Usually, a company enters a CVL after its directors realise that its liabilities exceed its assets or it cannot pay its debts as and when they fall due and therefore the company cannot continue its business.
The procedure is set out in the Insolvency Act 1986 (IA 1986) and the Insolvency Rules 1986 (SI 1986/1925) (IR 1986)
An Outline of the CVL Procedure
A Creditors Voluntary Liquidation (CVL) must follow the procedure set out in the Insolvency Act 1986 (as amended).
We will assist the Board with the preparation and administration at each stage, including drafting notices, minutes and other documents where appropriate, but the ultimate responsibility remains with the Board. The following main steps must take place in each appointment:
A quorate meeting of the Board of Directors will have to approve the issue of notices convening the Members’ Meeting and Creditors’ Decision Procedure required by statute to place the Company into CVL, nominate someone to act as chair at the meeting of Members and Decision of Creditors and state which Directors are to verify a statement of affairs on behalf of the Company by completing a statement of truth.
We will provide standard minutes that include resolutions that, among other matters, will approve pre-appointment fees and appoint the Insolvency Practitioner to assist with the convening of the statutory meetings.
Notices have to be issued to Members and Creditors within statutory timescales convening meetings / decision procedures to wind up the Company voluntarily, appoint a liquidator and (creditors only) authorise the payment of any outstanding pre-liquidation fees incurred in connection with preparing the Statement of Affairs and convening the meeting of creditors from the assets of the Company.
Statement of Affairs
The Directors nominated by the meeting will be required to prepare a statement of affairs on behalf of the Company. We will assist you in preparing a draft statement of affairs from information that the Board provides, but it remains the Board’s statement, and those who verify the accuracy of its contents by completing a statement of truth will be ultimately responsible for any false disclosure or omission. The statement is sent to creditors in advance of the deemed consent procedure or the virtual meeting and is lodged at Companies House.
The Director nominated to chair the Creditors Decision Procedure will be required to provide information for inclusion in a report to the meeting. Although we will assist in the drafting of the report, it remains the Director’s report and the nominated chair may have to answer questions raised by creditors in response to any disclosure made in it.
Meeting of Shareholders
A meeting of shareholders is then held pursuant to section 84 of the Insolvency Act 1986. The meeting considers a special resolution that the company cannot, by reason of its liabilities exceeding its assets, continue its business and that it is advisable to wind up. The special resolution requires a majority of 75% of those present and voting in person or by proxy. The shareholders also nominate a liquidator. This requires an ordinary resolution passed by a simple majority of more than 50% of those present and voting.
Where there is a holder of a qualifying floating charge or a company is registered with the Financial Conduct Authority or Prudential Regulation Authority, before a company passes a resolution for voluntary winding up, it must receive notice of 5 working days.
Decision Procedure for Creditors
The creditors are then given the opportunity to consider the appointment of an insolvency practitioner either by deemed consent procedure or by holding a virtual meeting of creditors. Depending on which process may be appropriate detailed below is the procedure for both:
Creditors will be sent a notice detailing the resolution to appointment the nominated liquidator together with a copy of the Statement of Affairs of the company. The creditors will be advised of the day on which the resolution will deemed to be passed (this will usually be the day of the members meeting). The notice must be delivered to creditors 3 business days before the date the resolutions are deemed to be passed. Best practice determines that two weeks’ notice is normally provided to creditors. The creditors will be informed that they have the right to object to the deemed consent. If creditors object then a physical meeting will need to be called to seek a decision from creditors on the nomination of a liquidator. If creditors do not object then the resolution is deemed passed.
This virtual meeting is usually held on the same day as the shareholders’ meeting. The purpose of this virtual meeting is to nominate a liquidator and a committee. If however a committee is not formed the creditors will also be asked to approve resolutions relating to fees.
Notice of the virtual meeting of creditors together with the Statement of Affairs of the company is delivered to creditor’s not less than three business days’ before the virtual meeting is held. Best practice determines that two weeks’ notice is normally provided to creditors. The notice of the creditors’ virtual meeting is advertised in the London Gazette and, if thought necessary, in a local newspaper. The creditors will be informed that they have the right to object to the virtual meeting. If creditors object then a physical meeting will need to be called. In the event that objections are received by creditors about either the deemed consent procedure or the virtual meeting it will be necessary for a physical meeting to be called.
Once the criteria to call a physical meeting has been met then a physical meeting of creditors needs to be held within 14 days. The notice calling the physical meeting must be delivered at least 3 business days before a meeting may be held. The notice of the creditors’ meeting is advertised in the London Gazette and, if thought necessary, in a local newspaper.
After the meetings, the Liquidators are required to issue and advertise a variety of notices for the attention of the Registrar of Companies, the Secretary of State, other statutory bodies such as HM Revenue and Customs and the members and creditors generally.
How are the costs of Liquidation met?
Payment for this work is made from the company’s assets if funds permit. If no funds are available the directors, or a third party would be expected to pay these costs.
Advantages of Creditors Voluntary Liquidation
Liquidation does not really provide an advantage when the flip side is your business will cease. It can be a worrying time with the pressures of company debt and making the ultimate decision to voluntarily wind up your company or wait for a creditor to present a petition to wind up your company (compulsory liquidation).
It may be favourable though to initiate the process yourself and opt for a voluntary liquidation instead of being forced into the compulsory winding up of your company.
You will be able to utilise your time to gather all the necessary information together and plan the best route for your Company. If you were being faced with compulsory liquidation you will be subject to time frames forced upon you. A CVL can be a relatively quick process and a decision process can usually be convened within a few weeks. It can take months for a compulsory liquidation and this can be a worrying time while you are still at the mercy of your creditors.
With a voluntary liquidation you will decide who you wish to use as your nominated liquidator. This does not happen when faced with compulsory winding up whereby an Official Receiver is appointed.
Within 3 months of the appointment of the liquidator, they are required investigate and file a conduct report on the director affairs taking into consideration how they ran the business. This is to address matters such as misconduct by way of wrongful trading. If you decide to voluntarily enter into a CVL you are able to receive guidance from your Insolvency Practitioner from the outset.
4. Official Receiver
Under a compulsory liquidation Directors will certainly face questions and will be interviewed by the Official Receiver.
5. Acquiring Assets
With a voluntary liquidation there is the potential to purchase the assets of the business. Directors who have an appetite to carry on the business inside a new company would sometimes wish to acquire these.