A Creditors Voluntary Liquidation is a liquidation begun by the directors and then ratified by the shareholders, whilst the creditors confirm the appointment of the liquidator.
The CVL is the most dignified and preferred way for the directors of a company to deal with the insolvency. The law prohibits wrongful trading when a company is insolvent, and directors could risk being found personally liable if they do not take action at an early stage. Directors should consult a licensed insolvency practitioner for advice on their position.
Once a meeting of creditors has been held to confirm the appointment of the insolvency practitioner as the liquidator of the company, the directors will be required to cooperate with all reasonable requests made by the liquidator.
The Directors of a company will usually have a preliminary meeting with a Licensed Insolvency Practitioner, at this meeting the financial position of the company will be discussed and the options that are available to either rescue the company or to initiate the liquidation procedure.
Once the directors are ready start the liquidation process a board meeting will be held in order to resolve that the company be placed into liquidation. Two meetings are then required to be convened a Shareholders meeting which passes the resolution to wind up the company and nominate a liquidator, the other meeting is a creditors meeting.
Between the board meeting and the shareholders and creditors meeting, the director(s) shall furnish the nominated liquidator will all information required so that a statement of affairs and directors report can be compiled. The nominated will usually instruct agents to collect and safeguard any assets that may be at risk.
The shareholders meeting requires to be convened at 14 days notice (plus days for postage), this meeting can be held at short notice as long as 90% of members are available to sign a consent to short notice. At this meeting only 2 resolutions are required, the first one is to wind up the company and the other is to appoint a liquidator.
Once the resolutions have been passed to liquidate the company and appoint a liquidator then a creditors meeting then held, this has to be within 14 days after passing the shareholders resolutions, however in practice this is usually the same day directly after the shareholders meeting.
At the creditors meeting a directors report and statement of affairs of the company is circulated to the attending creditors, the shareholders appointed liquidator will then summarise the directors report and then open the floor to questions to the attending director(s). The creditors are then free to ask in an orderly fashion questions of the director(s) on how the company traded and the reasons why the company has gone into liquidation.
Once the questioning has been concluded a number of resolutions are required, the first resolution is that the shareholders appointed liquidator is confirmed by creditors (it is the creditors decision who the appointed liquidator is).
The creditors are then entitled to form a liquidation committee, the liquidation committee also known as creditors committee requires a minimum of 3 creditors and a maximum of 5. If a committee is formed then the creditors meeting will come to an end.
If there is no liquidation committee then the liquidator will require some further resolutions being passed relating to the approval of remuneration, expenses and any other resolution that may be required. Once all the necessary resolutions have been passed the meeting will then close.
The duties of the liquidator once appointed will then investigate into any matters arising from the creditors meeting, conduct an investigation in accordance with Statement of Insolvency Practice 2, submit a report to the Secretary of State for Business Innovation and Skill on the conduct of directors, take any action arising from the investigation, realise all of the assets of the company, agree creditors claims, make distributions to creditors and report to creditors on a minimum of an annual basis whereby an account of the liquidation will be given.
Contact us now for a free confidential no obligation review