Creditors’ Voluntary Liquidations

A creditors’ voluntary liquation (“CVL”) is a corporate insolvency process which allows the directors (with shareholder approval) to wind down an insolvent company on a voluntary basis. It is commonplace for this procedure to be used when the directors recognise that the company cannot continue to trade, no further funding can be found or there is no appropriate rescue procedure available.

By taking positive action in a timely manner, the directors would be adhering to their fiduciary and statutory duties. Therefore, the use of the CVL procedure following the onset of the recognition of insolvency can be seen as an honourable “hands up” action, enabling a director to act of their own volition rather than succumbing to enforcement action by a creditor. Acting expeditiously, could avoid certain charges of misconduct often levied against an intransigent director.

A company is placed into CVL following a meeting of the shareholders or the passing of resolutions by way of written resolution prompted by the board of directors. Following, the passing of the resolutions to liquidate, the liquidator then takes control of the company, realises assets, deals with statutory reporting, carries out their investigations, pays the costs of the liquidation and if there are sufficient funds, will distribute these amongst the creditors (based on their statutory priority) before finalising the liquidation (after which the company is dissolved).