Creditors' Voluntary Liquidation (CVL)

What is Creditors’ Voluntary Liquidation (CVL)?

Creditors’ Voluntary Liquidation (CVL) is the process of winding up an insolvent company by a special resolution passed by its members (shareholders). This type of liquidation is initiated by the company’s directors and shareholders when the company can no longer pay its debts as they come due. Unlike a compulsory liquidation instigated by creditors through the courts, a CVL is a voluntarily accepted procedure centered around negotiations with creditors.

Key Aspects of CVL:

1. Insolvency Recognition:

   • Before initiating a CVL, the company must acknowledge that it is insolvent and can no longer meet its financial obligations.

2. Special Resolution:

   • The company’s members must pass a special resolution to wind up the company. This resolution requires at least 75% approval of the shareholders’ votes.

3. Creditors’ Meeting:

   • A meeting of creditors must be held within 14 days after the special resolution is passed. Creditors receive a minimum of seven days’ notice of the meeting.

4. Appointment of Liquidator:

   • A liquidator, who will oversee the liquidation process, can be appointed by the members prior to the creditors’ meeting or by the creditors during the meeting itself. If different liquidators are appointed, the creditors’ choice usually prevails.

Examples of CVL:

1. Retail Business Bankruptcy:

   • A small retail business struggling with declining sales and increasing debt may opt for a CVL to settle debts with suppliers and creditors.

2. Technology Startup Liquidation:

   • A tech startup that failed to secure additional funding and cannot pay its obligations to employees and vendors may undergo a CVL process initiated by its directors.

FAQ Section:

Q1: What happens to the employees during a CVL?

• A1: Employees may be made redundant, but they are entitled to claim unpaid wages, holiday pay, and redundancy payments through the process.

Q2: How long does a CVL process usually take?

• A2: The duration varies depending on the complexity and size of the company, but typically it can take anywhere from 6 months to a few years.

Q3: Can the directors of a company be held personally liable in a CVL?

• A3: Generally, directors are not personally liable unless there is evidence of wrongful trading or directorial misconduct.

Q4: What is the role of a liquidator in CVL?

• A4: The liquidator’s role is to collect all the company’s assets, settle creditor claims, distribute any remaining funds to shareholders, and dissolve the company.

Q5: Can a CVL be reversed once it has started?

• A5: It is challenging to stop a CVL once it commences, but under exceptional circumstances and with court approval, it might be possible.

Related Terms with Definitions:

• Insolvency: The inability of a company to pay its debts as they fall due.
• Members’ Voluntary Liquidation (MVL): A process where solvent companies opt to wind up their affairs and distribute assets to shareholders.
• Liquidator: A person or firm appointed to wind up the affairs of a company by collecting its assets and settling its debts.

Online References:

• UK Government Insolvency Guide
• The Insolvency Service

Suggested Books for Further Studies:

1. “Liquidation & Insolvency Manual” by Andrew Wheldon - A comprehensive guide on corporate insolvency and liquidation processes.
2. “Corporate Insolvency Law: Principles and Policy” by Vanessa Finch - Provides detailed analysis of insolvency laws and their application.

Accounting Basics: “Creditors’ Voluntary Liquidation (CVL)” Fundamentals Quiz

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