Published: 23/07/2018Placing your Company into Creditors’ Voluntary Liquidation: A Brief Overview
Creditors’ voluntary liquidation (CVL) is a voluntary process that is available for directors of a company to instigate an orderly winding up of the company. This process is normally utilised when a company is balance sheet insolvent and/or is unable to pay its liabilities as they fall due and the only option is to close the company. Below is a summary of the steps involved in placing the Company in CVL.
The directors will resolve that the Company is insolvent (i.e. it cannot pay its debts) and seek advice from a licensed Insolvency Practitioner (“IP”) where the financial position of the Company is discussed. Following receipt of the advice, the directors will make the decision to take steps to place the Company in liquidation. The first stage in the process is to formally instruct a licensed IP to assist and provide him or her with all information reasonably required to enable a statement of affairs and directors report to be prepared.
Next, a shareholders’ meeting must be convened in order to consider a special resolution to wind the Company up and an ordinary resolution to appoint a liquidator. 75% (by value of shares) of shareholders must pass the special resolution to wind the company up and 50% (by value of shares) of shareholders must pass the ordinary resolution to appoint a liquidator. The shareholders’ meeting must be held on 14 days’ written notice. Notwithstanding this, in order to expedite matters shareholders may waive their right to receive full notice of the meeting on the condition that 90% of shareholders provide their written consent.
The final stage relates to creditors and this is the main area affected by the new Insolvency Rules (which came into effect on 6 April 2017). Amongst many other changes, the new Insolvency Rules saw an end to their being a need to hold a physical meeting of creditors when placing the Company in CVL in an attempt to modernise and streamline the process. It is now not possible to convene an actual physical meeting at the outset (unless requested by creditors – further details below). Companies have two options (or ‘decision procedures’) to choose from:
Decision procedure 1: Convene a virtual meeting of creditors; or
Decision procedure 2: Deemed consent procedure.
In either of the above decision procedures:
- Creditors must be provided with at least 3 business days’ (on receipt/deemed receipt) notice of the decision procedure;
- A statement of affairs and report to creditors can be sent to creditors together with the notice or alternatively so that it is received/deemed received at least one business day prior to the decision procedure date;
- Creditors can request that a physical meeting be held. Such a request must be made by 10% of creditors in value, 10% of the total number of creditors or 10 creditors. This is commonly known as the “10:10:10” rule.
A virtual meeting of creditors can be held by telephone conference or by webcam and creditors who attend are afforded the opportunity to ask questions of the director(s) on how the company traded and the reasons why the company has gone into liquidation and raise any concerns they may have about the way in which the Company’s business has been conducted.
With the deemed consent procedure, the notice that is issued advises creditors that the Company will be placed into liquidation and that a liquidator will be appointed on a specific date (the decision date) unless an objection is received (as per the 10:10:10 rule above).
Please note that in practice the shareholders’ meeting is usually held on the same day as the decision date.
If you’re experiencing financial difficulties and/or considering liquidating your Company, please contact a member of our friendly, professional team on 020 8661 7878 for a free confidential no obligation review.