Liquidation

Creditors’ Voluntary Liquidation

Creditors’ Voluntary Liquidation (CVL) is the most common insolvency procedure for an insolvent limited company and is the mechanism for a formal winding of a company’s affairs.

The shareholders or usually the directors of a limited company may realise that the company is insolvent since it cannot pay its debts as they fall due or it has more liabilities than assets. They will then contact a licensed insolvency practitioner with a view to assisting them to place the company into a CVL.

A CVL involves a licensed insolvency practitioner calling a meeting of members and a meeting of creditors, which usually follows straight after the meeting of members. These meetings will be chaired by a director of the company. At the meeting of members the company will be placed into Liquidation and a Liquidator will be appointed. The creditors meeting affords the creditors the opportunity to ask questions of the director, form a creditors committee, confirm the appointment of the Liquidator, or appoint a different Liquidator and agree the basis of the Liquidators fees, if no creditors committee has been appointed.

A Liquidator has a duty to act in the best interest of creditors.

The Liquidator’s duties include investigating the demise of the company and the conduct of directors, selling of the assets of the company, agreeing the creditors’ claims and distributing the realisations from the assets to the creditors. The Liquidators also reports annually to the creditors and again at the end of the Liquidation. The company is dissolved three months after the end of the Liquidation.

For further information and a free initial consultation, please contact, John Hedger, head of our corporate insolvency team, who will be pleased to help you, alternatively, please email us at equiries@seneca-ip.co.uk and we will get back to you within 24 hours.

Compulsory Liquidation

Compulsory liquidation is when an insolvent company is wound up by an order of the court. This usually takes place when a company fails to pay a statutory demand, which requires payment of the outstanding debt within 21 days, or a settlement to pay be agreed between the parties. The amount owed must be more than £750.

The court can also issue an order on the petition of a shareholder, director or by the Secretary of State for the Department for Business, Innovation and Skills on the grounds of public interest.

The official receiver then acts as liquidator. The official receiver has 12 weeks in which to decide if there are sufficient assets to appoint a licensed insolvency practitioner as liquidator. Or the creditors can request a meeting is called to appoint a liquidator other than the official receiver.

Members’ Voluntary Liquidation

An MVL is the process where a solvent company is placed in to liquidation, its affairs wound up and its assets realised and the company dissolved.

This occurs when the shareholders, usually at the directors’ request, decide that the company has come to the end of its useful life.

The the company can or will pay all its debts and obtain tax clearance within 12 months of the liquidation commencement and any surplus assets are returned to the shareholders.

A company that is dissolved by Companies House can be reinstated up to 20 years after the date of dissolution. The time limit for reinstating a company which has been wound up in a MVL is only six years. This limit is of particular importance if there is a potential for claims against the company at a later date.