Creditors’ Voluntary Liquidation (CVL)
Creditors’ Voluntary Liquidation (CVL) is a formal insolvency process that allows directors of insolvent companies to voluntarily close it down.
Company directors, having made the decision to wind up the company due to financial distress or difficulties, pressure from creditors or a desire to settle creditor debts, can at this point call in an Insolvency Practitioner.
This is when BABR can support you and take control of the process from arranging the sale of the assets to distributing the proceeds among the creditors accordingly. This provides a structured way for directors to address financial challenges and wind up the company while involving creditors in the process.
Process: How CVL works,
step by step
If you’re really not sure if CVL is an option for you,
we’ll help you decide, step by step.
Set up a free, no obligation consultation, meet or chat remotely with a qualified insolvency practitioner. We’ll have a frank conversation about whether CVL is the right option for you.
Practical guidance on how to stop trading, our expert team will provide personalised support, speak to creditors, the bank, other lenders, deal with HMRC and liaise with employees.
Co-ordinate the careful process of placing your company into CVL to include keeping on top of the essential paperwork and engaging with directors, shareholders and creditors.
Prepare a report on behalf of the directors, this will share the context of the CVL and why it was the right decision to stop trading. The report will be sent to creditors and shareholders.
As liquidators, BABR will help you fully understand your responsibilities and recover and sell company assets to repay creditors.
Once the assets have been dealt with, we’ll circulate the official report to the creditors and Companies House to finalise the liquidation. From here we can guide you on how to start again.
A liquidation is the process of bringing the life of a company to an end. Liquidation can either be done voluntarily, through a private sector insolvency practitioner or through the courts. A creditors voluntary liquidation is an out of court procedure, making it a much quicker process then a compulsory liquidation which would go through the courts. A creditors voluntary liquidation can also be used to organise a phoenix company.
Placing a company into liquidation is a quick and easy process. For a company to be entered into liquidation ‘Notices’ need to be prepared to convene a decision procedure of creditors. The Notices consist of approximately six documents and get sent out to both creditors and shareholders. The decision procedure often occurs within two weeks of the date notices being signed. The shareholders who have placed the company into liquidation would then nominate a liquidator. The appointment can either be ratified by creditors or they may decide to nominate their own choice of liquidator if not happy with the original choice. The whole process of a company entering liquidation can often happen within two weeks of a company being instructed to do so.
A creditors voluntary liquidation (CVL) is an insolvency process which sees an insolvent company placed into liquidation, bringing its life to an end. A CVL is an out of court procedure which sees the use of a private sector insolvency practitioner rather than the courts and the insolvency service. It tends to be a quicker and more cost-effective way of placing a company into liquidation. A CVL can also be used to create a phoenix company, which can see assets increased, jobs saved and an increase in the return that creditors can expect to receive.
To place a company into CVL can take as little as 7 to 14 days.
Once a company is in CVL and we take control as liquidators, a typical CVL is concluded within 7 months to a year. However, if required a CVL will continue as long as is necessary, for example where more time is needed to recover a company asset on behalf of creditors.
From the very moment we are appointed liquidators of a company, we take charge, leaving directors free to rebuild and restart.
In the short period leading to liquidation, directors remain responsible for the affairs of the company. However, we will provide support and guidance for all the practical decisions and steps that will need to be taken in the lead up to liquidation, for example:
How best to cease trading
Staff communication and managing redundancies
Communicating with HMRC and other creditors
Dealing with customers
Practicalities of placing a company into CVL
Once a company enters CVL, we are appointed liquidators of the company. As liquidators take full control and responsibility for a company’s affairs and although the directors remain in office, their powers cease. The directors only requirement is to assist the liquidators in carrying out their role. That generally involves an initial handover of key information about the company at the outset, and being available to answer ad-hoc questions from time to time that may arise during the course of the CVL.
In the meantime, the directors are free to move on with their lives and re-start, whether that be building a new successor business or seeking employment.
In short, yes. It is a common misconception that if you are a director of a company that fails and enters liquidation or administration, you cannot be a director in the future, but this is not the case.
When a company is placed into administration or liquidation, there is an independent review of the company’s records and the decisions and actions of those who were directors in the last three years. From our experience, in the vast majority of cases directors act in good faith, seek help when they need it and generally act reasonably. If a mistake is made, and if reasonable steps were taken to recover the position, either at the time or even following insolvency, it is very unlikely that those involved will be barred from being a director in the future.
It is only in more extreme cases where directors fail to act, put their own interests ahead of others, or where there is persistently bad behavior, that they face being disqualified from acting as directors in the future.
Wrongful trading is trading whilst insolvent or whilst you ought to have known you were insolvent. Insolvent means unable to pay your debts as they fall due.
If wrongful trading results in a greater loss to creditors overall than had the directors acted sooner and taken professional advice from an insolvency practitioner, they may be required to personally contribute to the company in CVL to restore the position to what it would have otherwise been had they not continued to trade longer than they should have.
If wrongful trading takes place, this may also result from a director being disqualified from being a director again the future.
All company debts are dealt with by the liquidator. Assuming there are sufficient asset recoveries to pay creditors, the liquidators will review and agree to claims to ensure they are valid and then make a payment to creditors according to their class and priority.
I have personally guaranteed a company debt – what does that mean for me?
Essentially where someone has provided a personal guarantee for company debt, assuming that it was properly entered into with the full knowledge and understanding of the guarantor, then they will have to settle any shortfall that the company in CVL cannot meet.
We can give guidance on how best to approach personal guarantees when they arise, subject to the specific circumstances.
‘Pre-pack’ insolvency sales refer to a situation where a sale of an insolvent company’s business and assets is negotiated to the company entering administration or liquidation. Once in administration or liquidation, the sale is completed by us as the appointed insolvency practitioners acting as either administrator or liquidator.
Key characteristics of pre-pack sales are:
- Assets are subject to independent valuation and (as far as possible) marketed to achieve best value for the company’s creditors
- We oversee sale negotiations to ensure that any completed sale is fair to all stakeholders
- We can and do sell assets to connected parties such as employees or directors if it represents the best outcome in the circumstances
- Any sale is subject to full disclosure to the company’s shareholders and creditors
- The sale is completed by us as independent insolvency practitioners acting as administrator or liquidator. This gives all parties comfort that the sale is unlikely to be challenged at a later date
Paul Bailey FABRP, Tom Ahmad FABRP ACA, Matt Reeds MABRP and Kirren Keegan MABRP are licensed to act as Insolvency Practitioners in the UK by the Institute of Chartered Accountants in England & Wales