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Creditors’ Voluntary Liquidation

In brief

A creditors’ voluntary liquidation or CVL, also known as a company voluntary liquidation:

– allows quick closure of a company unable to pay its debts.

– the conduct of directors is investigated.

– under certain circumstances, the business can continue as a ‘phoenix’.

What is a creditors’ voluntary liquidation?

A CVL occurs when your company’s directors believe there is no other way out from what seems to be a failing business. Your company must be insolvent for the CVL process to be initiated.

Your creditors could see little or no return of the money that you owe them. Their only consolation is that the conduct of the directors will be investigated, which could expose them to accusations of wrongful trading.

A liquidator is appointed who is responsible for converting all the assets of your company into cash, which is used to settle at least some debts.

Before entering into a CVL, your company should take professional advice from an appropriate specialist.

Who benefits from a creditors’ voluntary liquidation?

You benefit from being able to walk away from a failed business, having learned important lessons. Unless guilty of misconduct, you are not barred from running another business, including through a ‘phoenix’.

Creditors benefit through seeing closure on their debts, although these are unlikely to be repaid in full.

Who can initiate a creditors’ voluntary liquidation?

The directors of your company must begin the CVL process. They tell the shareholders, who invite an insolvency practitioner to call a meeting of creditors.

This meeting appoints a liquidator, who is responsible for winding up the company’s affairs and generating as much cash as possible from the assets.

What is a ‘phoenix’?

You can start a new business which trades in a similar way to that which was wrapped up through a CVL. Benefiting from the lessons learned, you have the opportunity to start afresh.

However, you cannot trade under a similar name to the old company and you are strongly recommended to take legal advice before proceeding down this route. It is possible to commit a criminal offence, if you are not careful.

To set up a phoenix will require fresh working capital, as nothing can be carried over from the old, insolvent company.

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