Creditors Voluntary Liquidation
Creditors Voluntary Liquidation occurs when a business’s directors decide to put the business into liquidation because it is insolvent. Although it is voluntary it is often the result of pressure from external parties such as creditors or professional advisors.
A CVL is used when a company is insolvent and cannot pay its debts. This is preceded with a special resolution that is passed by a company declaring that it cannot continue with business operations due to insolvency and the only option available is to ‘wind up’.
The process is the following:
- The members pass a Companies Act 2006 resolution to say they cannot continue normal business trading because of financial liabilities.
- Within 14 days of the resolution, a meeting of creditors must occur to discuss the liquidation.
- Notice of the special resolution for voluntary winding-up of the company must be published in the Gazette within 14 days of the general meeting. The company must also send a copy of the declaration and the special resolution to the Registrar within 15 days of the general meeting.
- Notice of this meeting must be made to creditors 7 days before it occurs.
- Company directors must prepare a state of affairs for consideration at the meeting, as well as appointing one of themselves to oversee and attend the meeting.
- A statement of affairs must be provided to the liquidator who is often also an insolvency practitioner.
- The liquidator must send a statement of affairs and Form 4.20 to the Registrar within 7 days of the creditors' meeting.
- The liquidator must also send a statement, in duplicate, of receipts and payments for the first 12 months of liquidation. After that, statements must be sent every 6 months until the winding-up is complete.
- The liquidator will call in all the company's assets and distribute them to its creditors. If anything is left over, the liquidator distributes it among the members of the company.
- At the end of the process the liquidator presents an account to a final meeting of creditors and members of the company. Within one week the liquidator must send the account to the Registrar and a return of the final meeting.
- Unless the court makes an order deferring the dissolution of the company, it is dissolved 3 months after the return and account are registered at Companies House.
The whole process can sound complicated but if you are working with the right insolvency practitioner they can make voluntary liquidation a more manageable experience.
If you are considering a CVL or want more details on the liquidation process please call Business Rescue Service on 0845 468 2395 or fill out our contact form.
