Creditors’ Voluntary Liquidation (CVL)

Firstly, the company directors will hold a board meeting to decide whether a CVL is the right choice for the company.

If the majority of the board is in agreement, the company will usually cease trading to avoid incurring any further debt or putting the directors at risk of being held liable for wrongful trading. The directors will also agree to call a shareholders’ meeting so that the shareholders can vote on placing the company into liquidation.

The directors will formally instruct a licensed insolvency practitioner to oversee the liquidation and begin the process. They will then give notice to creditors and shareholders of the decision date (the effective date of liquidation) and an upcoming general meeting, respectively.

With the insolvency practitioner’s assistance, the directors will prepare a Statement of Affairs. This is a document that contains details of the company’s financial position, providing estimates of the realisable value of the company’s assets and the amount it owes to creditors. They will also prepare a directors’ report detailing the company’s trading history, the financial affairs of the company and the events leading to the company’s insolvency. This information is sent to creditors ahead of a creditors’ decision procedure.

The directors must provide shareholders with an opportunity to pass a resolution to put the company into liquidation. This can be done either by correspondence or via a meeting. The shareholders are usually provided with 14 days’ clear notice, unless the articles of the company dictate otherwise.

If the company has two or more shareholders, at least two must be present at the meeting to pass a valid winding-up resolution. If 75% of shareholders (by value of shares) agree to the winding-up resolution, then the company is placed into the liquidation process with immediate effect.

Usually, a creditors’ decision procedure is held the same day as the shareholders’ meeting. Creditors must be provided with at least three business days’ notice of the decision procedure and, if it is a virtual meeting of creditors, it should be advertised in the London Gazette. This decision procedure allows creditors to vote on the appointment of a liquidator. Creditors cannot, however, stop the company from entering liquidation.

In most instances, the insolvency practitioner will be present at the meetings of both creditors and shareholders, to assist with the process and deal with any queries that are raised.

Directors and shareholders can make an offer to purchase the company assets from the liquidator if they wish to.

Most employees who are made redundant will receive any outstanding wages, holiday pay, notice pay and redundancy pay from the Redundancy Payments Service in accordance with the relevant legislation.