What is a Creditors Voluntary Liquidation? 

Although it is possible to salvage the business, and sell it on, to all intents and purposes a Creditors’ Voluntary Liquidation (“CVL”) represents the ‘death’ of the Company. It is therefore a solution which should only be used after other possibilities have been considered and dismissed.

The process starts with a Directors’ meeting, which authorises an Insolvency Practitioner (“IP”) to call meetings of shareholders and creditors. These meetings are usually called for the same day, with one immediately following the other.

At the shareholders’ meeting, resolutions are passed to place the Company into liquidation and to appoint a particular IP as Liquidator. Until this meeting, the Company is not in liquidation and the Directors retain full control.

At the creditors’ meeting, a package of information is provided to enable the creditors to understand why the Company has failed. The appointment of the existing Liquidator is ratified, or overturned and a replacement found. The creditors have a choice as to whether to form a Committee.

The Liquidator:

  • sells the assets
  • collects the book debts
  • agrees creditor claims
  • distributes the funds
  • reports on the actions of the Directors.

In the course of his investigations, the Liquidator will look at various possible offences. These include:

  • Wrongful trading – trading when you knew, or ought to have known, that the Company was insolvent
  • Preference – have you treated one creditor better than another, particularly if the preferred creditor is a member of your family or holds a personal guarantee from you
  • Fraudulent trading – for example, taking deposits from the public knowing that you will never supply the goods.
    A Director faces a ban from being a Director for between 2 and 15 years if his actions in the time leading up to the liquidation warrant it.

Can I buy the assets, or set up in a similar business?

There is nothing to prevent a Director from setting up in a similar business. However, there are rules governing the use of the name. It is worth getting advice on this matter.

What will happen to my employees?

Employees’ contracts of employment are automatically terminated with the appointment of a Liquidator, if they had not been dismissed previously. Claims can be lodged with the Redundancy Payments Service (“RPS”), and payments will be made direct to employees in respect of arrears of wages, holiday pay, redundancy and pay in lieu of notice. The RPS will then stand in the shoes of the employees for receipt of any dividends.