What is a Company Voluntary Liquidation?
A Company Voluntary Liquidation (also known as a CVL) is a legal process for closing an insolvent company. An insolvent company is a company that does not have enough money to pay its debts. The CVL allows the company’s directors to appoint a Licensed Insolvency Practitioner to oversee the liquidation (closure) process. The main role of the Insolvency Practitioner (IP) is to maximise returns for the company’s creditors and ensure a fair distribution of any assets. The creditors are people or companies to whom money is owed.
The decision to initiate a CVL is often a difficult one and is usually a last resort option for the company’s directors. However, it is a responsible course of action to take when a company is unable to pay its debts and there is no possibility of recovery or rehabilitation. By choosing voluntary liquidation, the directors are demonstrating their commitment to addressing the company’s financial problems and is a way of minimising the impact on others to who the company owes money to.
The process of CVL begins with a resolution, passed by the company’s shareholders, followed by a formal notification to Companies House, which must be within 15 days of the resolution. Once the resolution is passed, the company’s directors must appoint a Licensed Insolvency Practitioner, a professional with expert knowledge on insolvency matters, to act as the liquidator. This ensures that the liquidation process adheres to the strict legal requirements and provides creditors with the assurance that their interests are being protected.
The liquidator takes control of the company’s affairs, ceasing its business operations and initiating the realisation and distribution of its assets. The liquidator’s role is to gather and evaluate all available assets, sell them at market value, and distribute the proceeds to creditors in a fair and transparent manner in accordance with the statutory distribution hierarchy. This hierarchy prioritises secured creditors, followed by preferential creditors, and then unsecured creditors.
During the liquidation process, the liquidator is also responsible for investigating the conduct of the company’s directors and reporting any misconduct or fraudulent activity to the relevant authorities. This ensures that directors are held accountable for their actions and discourages any future misconduct or improper behaviour.
For employees affected by the liquidation, there are usually government provisions in place to protect their rights, including potential redundancy payments and assistance in finding alternative employment. The liquidator will liaise with employees to keep them informed and provide necessary support throughout the process.
It is important to note that a CVL is distinct from a compulsory liquidation, which is initiated by external parties such as creditors or by a court. By choosing voluntary liquidation, directors maintain some control over the process and can actively participate in the decision-making, while also demonstrating their willingness to address the company’s financial problems responsibly.
