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CVL (Creditors' Voluntary Liquidation)

A CVL (Creditors' Voluntary Liquidation) is the most common form of liquidation in use in England and Wales and formally brings to an end the operation of the company.


Benefits of a CVL for Directors:

  • A quick and cost effective way of formally closing down a company
  • Ensures you are complying with your duties as a director
  • Ends pressure from creditors
  • Allows you to negotiate with creditors regarding personal guarantees
  • May minimise directors' exposure with respect to wrongful trading action.

If you are a Director of a limited company then you have a legal responsibility to seek professional advice if you believe your company may not be able to avoid insolvency. Furthermore if you continue to trade whilst insolvent you may be found guilty of wrongful trading and, in extreme cases, become personally liable for any additional debts incurred.

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When is a CVL appropriate?

If your company is insolvent and is unable to trade out of its current cash flow problems then a CVL may be the only appropriate course of action.

The Company Director Disqualification Act 1986 deals harshly with company directors who ignore the early warning signs of insolvency, so it is important to seek advice early in order to ensure you abide by the rules set out.

A CVL is appropriate where:

  1. Your company is insolvent
  2. A CVA is not an appropriate option
  3. Your company does not appear to have a viable future – even if restructured
  4. The directors don’t feel they have the determination and/or funding needed to rescue the company

What happens next?

Once it has been proposed that a CVL is appropriate, a board meeting is held, as detailed below. A members' meeting is also called and held as is a creditors' virtual meeting.

The first, the Board of Directors' Meeting, resolves to approve the issuing of notices convening the Members' meeting and Creditors' virtual meeting to place the Company into CVL, to nominate someone to act as chairman at the meetings and state which directors verify the Statement of Affairs.

The second meeting, the Members' Meeting, involves the Company's Shareholders (Members) who then vote on the proposed CVL and the proposed Liquidators. If shareholders voting representing 75% of the Company's share capital agree, the Company is placed into Creditors' Voluntary Liquidation at this point.

After the Members' Meeting, the creditors have the opportunity to confirm the Liquidators' appointment or replace them with their own, appoint a committee and approve the fees. There are two ways the creditors can nominate a Liquidator, either at a virtual meeting, or if requested (fitting the criteria), at a physical meeting. The directors of the Company at the meeting, explain the information which has been sent to the creditors in advance of the meeting, which gives details of the financial circumstances, their history and the reasoning behind the liquidation. The creditors are given the opportunity to put forward any questions when the route is a virtual/physical meeting.

Once appointed the Liquidators then have three main duties:

  1. To realise the company's assets, and
  2. To divide the proceeds to the claims of the company's creditors, and
  3. To investigate the company's affairs and the directors' conduct.
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