A creditors voluntary liquidation (CVL) is a process that allows a company that is no longer able to pay its debts to close down in an orderly manner. It is a way for the company to resolve its financial difficulties and pay off its creditors as much as possible.
Here is a step-by-step guide to the creditors’ voluntary liquidation process:
- The directors of the company decide that the company is insolvent and can no longer pay its debts. They must also have reasonable grounds to believe that the company will be unable to pay its debts in the future.
- The directors convene a meeting of the company’s creditors to vote on whether to place the company into voluntary liquidation. The directors must present a statement of the company’s affairs at this meeting.
- If the creditors vote in favour of liquidation, the directors appoint a licensed insolvency practitioner (IP) as the liquidator. The IP’s role is to oversee the liquidation process and to ensure that the company’s assets are sold in an orderly and fair manner.
- The IP takes control of the company’s assets and begins the process of selling them off to pay the company’s creditors. This may include selling the company’s inventory, machinery, and real estate.
- The IP works with the company’s creditors to come up with a plan for paying them as much as possible. This may involve negotiating with creditors to accept reduced payments or setting up a payment schedule.
- Once the company’s assets have been sold and the creditors have been paid as much as possible, the IP prepares a final report for the creditors and the company’s shareholders. This report outlines the steps taken during the liquidation process and the amount of money that was recovered.
- The IP applies to have the company struck off the register of companies. This officially dissolves the company and marks the end of the creditors’ voluntary liquidation process.
Benefits of a CVL
There are several benefits to a CVL.
- It can be a less costly option: Depending on the circumstances, a CVL may be less costly than other options for closing down a company, such as bankruptcy or receivership. This can be an important consideration for directors who are trying to minimize financial losses.
- It can protect the directors from personal liability: In some cases, directors can be held personally liable for the company’s debts if the company is forced into bankruptcy. A CVL can help to protect the directors from this liability and allow them to move on without the burden of personal debt.
It’s important to note that during the creditors’ voluntary liquidation process, the company’s directors lose control of the company and its assets. The IP is responsible for managing the liquidation process and making decisions on behalf of the company.
Creditors’ voluntary liquidation can be a complex and stressful process, and it’s important to seek the advice of a licensed insolvency practitioner if you are considering this option for your company. They can help you understand the process and guide you through the steps involved.
