A Creditors’ Voluntary Liquidation is a process which enables Directors to formally close an insolvent company voluntarily.
It’s often chosen by directors as a means of taking control in the face of continued creditor pressure and the imminence of a Winding up Petition.
First consultations are free of charge, and with no obligation.
A benefit of a CVL is that unlike in a Compulsory Liquidation, directors’ are able to nominate their own Liquidator. The Liquidator, once appointed, will deal with realising any assets of the company and making distributions to creditors.
Arrange Liquidation with Your Creditors
A licensed insolvency practitioner at AABRS® is able to act as Liquidator of a company in order to assist directors in the formalities of arranging liquidation to pay creditors and close the company.
It is important that company directors take advice at an early stage, as they need to understand their responsibilities. Company directors of an insolvent company have a duty to minimise the loss to creditors. The failure to do so might lead to potential personal liabilities for the company directors in the future.
First consultations are free of charge, and with no obligation.
What is Voluntary Liquidation?
Voluntary Liquidation means the decision to close down a limited company, usually with the threat of insolvency looming.
When the decision is arrived at by vote, the company is wound up and dissolved. Voluntary liquidation means this is a company decision and not one forced upon by the court.
Voluntary Liquidation is also appropriate for solvent companies wishing to formally close their company, too. Members Voluntary Liquidation is the appropriate method of liquidating the assets of a solvent company, before dissolving it and striking it off the register at Companies House.
Why put a Company into Creditors’ Voluntary Liquidation (CVL)?
Here are the reasons for putting a company into Creditors Voluntary Liquidation:
- The company may have received a winding up petition or statutory demand from a trade creditor. Unable to pay its debts, it therefore wishes to place the company into a Creditors Voluntary Liquidation rather than a Compulsory Liquidation.
- The company may be insolvent on a balance sheet test, by virtue of its liabilities exceeding the assets of the company. As a result losses are only increasing and without a turnaround in the business’s fortune the Directors are conscious that continuing to trade might infringe on wrongful trading.
- The company is unable to pay its rent and as a result the landlord has appointed bailiffs to seize the assets of the company.
- The company has fallen behind on a time to pay agreement with HM Revenue & Customs and as a result the company has been issued a winding up petition.
- The company may have suffered a substantial bad debt and as a consequence is unable to meet its current liabilities which are now in arrears and trade creditors are now demanding payment.
- There could be a significant shift within a company’s industry to the extent that it impacts on the ability to trade. For example, a sudden change in industry standards or fluctuations within the market which renders a company’s current principal trading activity loss making.
It is, therefore crucial that steps are taken immediately to consult AABRS® once it is envisaged that the company is making losses and that it is uncertain as to the future of the business.
AABRS® offers a free initial consultation to discuss the financial position of the company and assess the current financial position. Please make contact with us via phone, email or live chat.
What is the Process for Creditors' Voluntary Liquidation?
The Companies Act 2006 provides the mechanism to convene a General Meeting of the shareholders in order to pass a Special Resolution to wind the company up. The process is initiated at a board meeting, which formally appoints AABRS®
to assist with the shareholders’ meeting and with the creditors’ decision.
The shareholders pass the resolution to wind the company up. The creditors’ decision on the appointment of the liquidator is then taken through a decision procedure, most commonly deemed consent or a virtual meeting, rather than the physical creditors’ meeting that was standard before the Insolvency (England and Wales) Rules 2016. A physical meeting is held only if creditors representing the required threshold requisition one. Roughly 14 days is allowed so that proper notice can be given to creditors.
The board meeting will also grant the powers to AABRS® to instruct agents; contact the company’s bankers; liaise with HM Revenue & Customs; and obtain financial information from the company’s accountants in order to gather as much financial information about the company.
It is important to note also that this Directors meeting does not necessarily have to be a physical meeting as it can be conducted by virtual means e.g. a skype or facetime meeting.
Whilst notices have been issued to creditors and shareholders convening the forthcoming meetings, the company is still formally not yet in liquidation and the directors are still considered as office holders of the company and therefore have a duty to act in the interest of creditors.
During this period of time it is imperative that the Directors assist AABRS® in obtaining as much financial information about the company as possible e.g. handover of accounting records. This feeds the report to creditors and the Statement of Affairs, both of which are delivered to creditors with the notice of the decision procedure rather than tabled at a meeting.
If the company owns various fixed assets, professional agents will be instructed to provide a detailed valuation report on the company’s assets by providing forced sale and going concern values.
AABRS® will also help employees claim arrears of wages, holiday pay, redundancy pay and pay in lieu of notice from the Redundancy Payments Service. Those claims are made online using the case reference number, which begins CN, that we provide once the liquidation starts. Paper RP1 forms are no longer used.
Shortly prior to the shareholders meeting, the directors’ sign a Statement of Affairs which is a summary of the assets and the liabilities of the company. This statement is obtained from the financial figures contained within the management accounting records of the company and any valuation reports received from professional agents who would have valued the company’s assets.
The nominated Chairman of the Shareholders meeting is a Director of the company who will present the Statement of Affairs to Shareholders. The shareholders will either be in attendance at the shareholders meeting or alternatively would have sent a proxy form either agreeing or rejecting the proposed winding up resolution.
The winding-up resolution is a special resolution, so it needs at least 75 per cent of the votes actually cast by members entitled to vote, or 75 per cent of the total voting rights if it is passed as a written resolution. Members who receive notice but do not vote are not counted against it. A further resolution appoints the members’ nominated liquidator from AABRS® .
Creditors decide who acts as liquidator, but since the Insolvency (England and Wales) Rules 2016 that decision is not taken at a physical meeting as a matter of course. It is taken by a qualifying decision procedure, most often deemed consent or a virtual meeting.
Before the decision, creditors receive a report prepared by AABRS®
setting out the company’s financial position. It contains the statutory information about the company, extracts from the accounts for the last three financial years, a trading history, the Statement of Affairs, a list of creditors and a deficiency account.
Under deemed consent, the proposed decision is treated as made unless creditors representing at least 10 per cent in value object. If they do, the decision has to be taken by a qualifying decision procedure instead.
Creditors can also insist on a physical meeting, and the threshold is low: a request from 10 per cent in value of creditors, 10 per cent in number, or simply 10 creditors, requires one to be held.
Where the decision is put to a vote, creditors can nominate a different liquidator. The resolution passes on a majority in value of those creditors who respond and whose claims are admitted for voting, subject to the rules on connected creditors. Creditors also have the right to ask the liquidator to look into particular concerns, and can challenge a decision within the period the rules allow.
Once appointed, the Liquidator will deal with the formalities of appointment. For example, notifying Companies House and placing an advertisement in the London Gazette.
Depending on the nature and complexity of the case, the liquidator may have to deal with the following matters: –
- Having instructed professional agents, the liquidator will deal with the formal disposal of company assets
- An investigation into the company’s books and records by submitting a report to the Insolvency Services within 3 months of appointment
- Instructing other recovery agent specialists in relation to other assets of the company e.g. book debt agents
- Claims of former employees at the Redundancy Payments office
- Should funds be available, the Liquidator will agree creditors’ claims and deal with any distributions to creditors.
The process of the liquidation could take between 6 months to several years depending on the case.
The liquidator has a duty to send progress reports on an annual basis to all creditors and shareholders advising on the progress of the liquidation during that preceding year. These reports are also filed at Companies House.
Once all assets have been realised and after costs and expenses, distributions have been made to creditors, the liquidator sends members and creditors a final report with the final receipts and payments account, together with notice that they intend to seek release. Final meetings were abolished by the Insolvency (England and Wales) Rules 2016.
Once the final account is filed at Companies House, the company is dissolved three months later.
What the Advantages and Disadvantages of Creditors Voluntary Liquidation?
Advantages
- Directors have more control than in a compulsory liquidation
- Creditor pressure moves off the directors and on to the liquidator, though a CVL creates no automatic moratorium
- Reduced Risk of Wrongful Trading
- It may be possible to purchase back the assets
Disadvantages
- Any liquidation process brings with it an investigation into the directors’ conduct and dealings
- Any personal guarantees may be called in by the lender
- The insolvency will be advertised publicly in the London Gazette
- Shareholders are unlikely to receive any returns
What’s the job of a Liquidator in a CVL?
The law requires that the liquidator be a qualified and licensed insolvency practitioner. The liquidator acts as an officer of the company with statutory duties, and must act in the interests of the creditors as a whole rather than for any one of them, or for the directors.
The liquidators principal role is to realise the company’s assets and distribute the proceeds to creditors.
The liquidator also has wide-ranging powers to investigate the conduct of the directors and, where appropriate, to pursue civil claims including wrongful trading or misfeasance. These are claims for a contribution to the company’s assets, not criminal charges: a liquidator does not bring charges. The liquidator must also report on the directors’ conduct to the Insolvency Service, which decides separately whether to seek a disqualification.
How Long does a Creditors Voluntary Liquidation Take?
Actually placing the company into a CVL is a relatively swift process, taking a fortnight or less.
The liquidation process which follows – whereby the insolvency practitioner will realise the company assets – is likely to take considerably longer. Of course the time frames will depend on the size of the company and the complexity of its assets.
How Much Does it Cost?
For many directors, trepidation around the potential costs of voluntary liquidation may delay the process to the point where you are forced into compulsory liquidation by creditors, a significantly more challenging scenario in most cases.
The first thing to realise is that costs for a CVL are usually taken from the realisation of assets and need not come from the directors’ pockets.
There is also the possibility of funding the liquidation from directors’ redundancy entitlements.
Can you Reverse a Creditors Voluntary Liquidation?
Voluntary Liquidation is usually chosen as a course of action to prevent impending action by creditors, such as a Winding up Petition, which might lead to compulsory liquidation.
Reversing a liquidation is difficult and it is not a decision the directors can take themselves. Once the company is in liquidation the liquidator is in office and the directors’ powers have ceased. Where circumstances genuinely change, an application can be made to court to stay the liquidation, and in a compulsory case to rescind the winding-up order, but these are court remedies granted on their own tests and they are not common. Take advice quickly, because what is realistically available narrows as assets are realised.
If the company has been struck off, reinstating it is possible through formal application. This is known as administrative restoration.
Can Directors be Held Personally Liable?
Once an insolvency practitioner has been appointed to liquidate the company, there is no avoiding the fact that directorial conduct will be investigated in the period preceding insolvency. The IP is tasked with ensuring no wrongful or fraudulent activity took place, to the detriment of the creditors, and they will do their due diligence in examining the relevant facts.
If the liquidator finds evidence of misconduct, what follows depends on what the evidence shows, because these are separate regimes rather than a single penalty. Wrongful trading is a civil claim under sections 214 and 246ZB of the Insolvency Act 1986: the court can order a director to contribute to the company’s assets, and it requires no dishonesty. Fraudulent trading requires actual intent to defraud, and has both a civil form under section 213 and a separate criminal offence under section 993 of the Companies Act 2006. Misfeasance is a further civil route for recovering money or property a director has misapplied. Preferences and transactions at an undervalue can be reversed on their own tests.
Director disqualification is separate again. It is pursued by the Insolvency Service, it is concerned with unfitness rather than compensating creditors, and it can result in a ban of up to 15 years. A disqualification does not by itself make a director liable for the company’s debts.