Creditors Voluntary Liquidation
A Creditors’ Voluntary Liquidation (CVL) is a legal UK insolvency procedure. The directors advise the company shareholders that the Company is insolvent and no longer viable. They seek the approval of the shareholder to appoint a Liquidator (A Licensed Insolvency Practitioner). A meeting of the companies creditors called while giving 14 days notice. Creditors then vote to select the nominated liquidator. The meeting is now held virtually, unless 10% of the creditors vote to meet in person by the value of 10%.
Once appointed, the Liquidator then:
- Realises the assets of the Company;
- Pays creditors of the Company in order of priority;
- Terminate employees’ employment with the Company;
- And close the company down, then remove it from the registrar at companies house.
This is the most common form of liquidation in England & Wales for limited companies, and ends the operation of the limited company.
Voluntary Creditors Liquidation?
Often people refer to ‘Creditors Voluntary Liquidation‘ as ‘Voluntary Creditors Liquidation‘.
Why would a director Voluntary Liquidate their Company?
Directors seek help from licensed Insolvency Practitioners when their companies are financially failing. If the Company has:
- Its creditors chase overdue accounts;
- Company fighting legal action;
- Severe cash flow issues (Run out of Cash);
- Debts growing out of control;
- Company unable to pay creditors as and when due;
- Risk of wrongful trading.
The process stage by stage:
Stage 1. Seek a reliable, experienced Insolvency Practitioner, as found in HBG Advisory;
Stage 2. Collate company asset details for valuation by an independent valuer;
Stage 3. Collate liabilities of the Company, ensuring all details of the creditor, along with amounts due included;
Stage 4. Handover all books, computer accounting records and statutory books to HBG Advisory for Liquidation;
Stage5. Hold creditors meeting chaired by a former director with creditors online, unless a physical meeting is required. (See above).
One Liquidator voted into office. Though the former directors no longer hold office, they may be required to assist the Liquidator in their statutory duties.
What is the difference between Voluntary Liquidation by members and creditors?
A Voluntary Liquidation by Members relates to a solvent company that pays all company creditors within 12 months of the Liquidator appointment.
If a Creditor’s Voluntary Liquidation is due, the Company cannot either pay its debts as and when due, or its liabilities are more significant than its assets. So, creditors of the company vote to appoint a liquidator.
What is a Creditor of a Company?
Company creditors. – Businesses and individuals who have supplied goods or services to the Company and therefore owed money. Creditors also include HMRC (Crown Preference), The company bankers (Usually secured if owed money) and other finance suppliers, including leases, hire purchases, and Landlords.
What is Trade Creditor?
Trade creditors. – Usually a supplier to the Company of goods for resale or manufacturing materials. They are ranked as unsecured creditors in Liquidation, unless creditors hold a guarantee of security in the event of a default.
What happens to unpaid creditors in a liquidation?
Once appointed, the licensed insolvency practitioner acting as liquidator will deal with all unpaid creditors, along with ensuring assets of the company are realised, so that creditors can distribute available funds once proven, and then paid in order of priority. Payment is prioritised as per the class the creditor is.
Company creditors fall into the following ranking for payment by the liquidator:
- Secured creditors with a fixed charge – Asset-based lenders (Machinery, Planes & Cars) along with Banks (Buildings, Land).
- Preferential creditors – Employees of the company with outstanding arrears of wages and holiday pay.
- Secured creditors with a floating charge – Creditors holding a form of security over moveable assets like materials, stock, office furniture and fixings.
- Unsecured creditors of the company – Trade creditors without any form of security (Suppliers) & finance agreements unsecured (Credit Cards & loans).
- The Shareholders of the company – Shareholders remain paid last once all other creditors have been paid in full. Usually, shareholders receive no payment in a CVL.
Limited companies and limited liability
Limited companies are separate legal entities. Therefore, they operate individual finances to the shareholders. Thus, it ensures that shareholders remain distinct and have no personal liability for company losses, debts, or legal claims against the Limited Company.
Limited liability within the structure of a limited company remains the primary reason for operating a limited company, along with tax benefits. Limited Companies safeguard company shareholders, and the only exposure they have is to lose their value in the shares initially invested.
Insolvency Planning for a Creditors Voluntary Liquidation
Company directors need to consider the process of liquidation. A pre-liquidation strategy meeting helps understand and plan what is required. Ensuring a professional review allows directors to maintain initial control:
The initial report needs to cover:
- Compile an enquiry pack;
- Critique the Company’s previous accounts filed going back at least five years;
- Audit charges registered over company assets;
- Measure former financial forecasts against actual;
- Company’s customers and its position in the market;
- Company’s critical processes adopted and improvements needed;
- Directors retirement strategy;
- Agree on company directors loan accounts;
- Ensure all options available.
Carrying out a pre-insolvency review may open up other options, other than liquidation.
Can I Liquidate My Company?
No. Only a licensed insolvency practitioner takes the appointment.
When Is A “CVL” Suitable to Use?
A CVL is suitable for closing an Insolvent Company. Putting a limited company in a CVL offers a quick procedure and may commence in ten working days.
How Long Is The Procedure For A Creditor’s Voluntary Liquidation?
Dependent on the realisation of company assets?
Cost To Liquidation
The cost depends on many factors:-
- Size of the Company;
- Company assets values;
- Number of creditors;
- Workforce numbers;
- Number of company locations;
- Any hazard issues;
- Is the limited company solvent or insolvent?
A basic Members Voluntary Liquidation costs £850 plus vat.
A simple Creditor, Voluntary Liquidations starts from £3,000 plus vat.
The above price excludes disbursements.
For further help on how do I liquidate my company? Please contact HBG Advisory on:
- FREEPHONE 0800 612 5448
- Book a confidential free VIRTUAL meeting safe and private online.
- Join webchat found on the bottom right of the webpage.