What is a Creditors Voluntary Liquidation? (CVL) - Definition of Insolvency - Other Options

Limited Company Liquidation

If you think that your company is insolvent then perhaps you might need to read the legal definition of the word "insolvent" as several duties fall on you as a director if your company is insolvent (in the strict legal sense of that word).  The definition of "insolvency" or more correctly the phrase "inability to pay debts" is found in Section 123 of The Insolvency Act 1986. The main characteristics of an insolvent company is one that cannot pay its debts as they fall due or whose liabilities exceed its assets.

A Creditors Voluntary Liquidation ("CVL")is commenced by you as the director or shareholder of your company when your company is insolvent. This type of Company Liquidation is not commenced by your company's creditors.

A Creditors Voluntary Liquidation involves a liquidator realising all of the assets of your company then distributing the sums raised to creditors in an order of priority set down in law.

While we have noted above that when your company is insolvent you, as a director of your company,  have a duty to take insolvency advice.  You may be more interested to know that you also have a duty in law to review the situation to see if steps other than a liquidation is best for creditors. That review provides you time to plan the best outcome (for you as a director and creditors) rather than being rushed into what might be an unnecessary Creditors Voluntary Liquidation.

The review might suggest a better approach than a Creditors Voluntary Liquidation such as:

• An informal work out
  

• A company restructure and restart business via a Company Voluntary Arrangement or
• • via an Administration Order or
  • via a Pre-pack Administration or
  • via a management buy out or
  • via a Creditors Voluntary Liquidation and the commencement of a phoenix re-start company.

• By the appointment of an Administrative Receiver - with a possible re-start company arising out of the ashes of the old company.

So don't get rushed into a creditors voluntary liquidation. First consider the definition of insolvency - then if your company is insolvent within the legal definition of that word obtain free insolvency advice - identify all the options other than a liquidation of the company - And agree a plan for the way forward.