Partner Article

Understanding Creditors Voluntary Liquidation

Creditors voluntary liquidation (CVL) is when directors choose liquidation due to the company being insolvent and overwhelmed with debt. This is a detailed process referred to as a CVL. A CVL is chosen when a company cannot repay their debts and when their liabilities exceed their assets.

This process starts when the director of a company realizes that the company cannot afford to trade anymore. The company may already be insolvent or at a point when there are no other options available to help the company climb their way out of debt.

The process starts with a shareholders meeting and the decision is made formally to close the company. From here the shareholders choose one or two directors to be responsible for the statement of affairs. They are then responsible for finding a liquidation specialist to help them with the process.A creditors meeting is called. This meeting must be advertised publicly and include all the shareholders, who must be informed of the meeting with at least seven days notice.

The liquidators sell the company assets to pay creditors by way of what is called a dividend. During this process you will find that debts are prioritized with secured debts paid before unsecured debts. Secured debts are often finance provided by lenders that are secured by a charge on the assets, such as a mortgage on building or a debenture on company machinery.

The liquidator is also responsible for writing to all their creditors creditors and settling claims for employees. Employees are a preferential creditor and paid ahead of HMRC for example who have no right to preference over other unsecured creditors. Creditors need to write a claim, this should include all evidence which includes statements, invoices and any correspondence associated with the account. The aim of the claim is for the creditor to get as much money back as possible from the liquidation. Most of these include a few cents or pence per dollar or pound. The benefit is that at least they get something back.

All claims submitted are then compared to the company’s records to ensure that they are accurate and to identify how to proceed with each claim. Remember secured debts are managed first, then preferred creditors such as employees, followed by the unsecured debts.

The liquidator is acting in the best interests of the creditors so is then responsible for identifying all the company assets and income receivables. They work to sell off all the assets and bring in as much outstanding cash as possible, which is then used to fund payments. Payments are then dispersed among the creditors.

Before choosing a creditors voluntary liquidation, it’s advisable to know all the merits, benefits, as well as pitfalls and the processes involved. Having a good understanding of how the process works and what to expect can make the transition easier.

Ensure you find yourself an experienced and knowledgeable insolvency specialist who can help you throughout the process. Debt management companies focusing on business debt have a wealth of knowledge and experience when it comes to liquidation and can ensure that you follow the necessary rules and guidelines throughout the process, they help you with selling your assets, collecting creditors claims and more to ensure that when the liquidation is completed, you have done all you can to close your business legally and effectively.

Selecting a creditors voluntary liquidation can help reduce personal liabilities as you have more control and time to consider matters. In addition a creditors voluntary liquidation can help when presented with a winding up petition. Statistically according to the Insolvency Service figures you are less likely to receive a disqualification.

Choosing creditors voluntary liquidation is a smart choice for any business that finds themselves in serious financial difficulty or insolvent. While it may not be the first choice, it is possible that it is the safest and most effective choice moving forward.

This was posted in Bdaily's Members' News section by Mike Smith .