What is a Creditors Voluntary Liquidation or CVL? - Definition of Insolvency - Other Options
Creditors Voluntary Liquidation or CVL
So what is a Creditors Voluntary Liquidation or CVL?
A Creditors Voluntary Liquidation or 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.
If you think that your company is insolvent then 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.
In general terms an insolvent company is one that cannot pay its debts as they fall due (this is called the Cash Flow Test) or its liabilities exceed its assets (this is called the Balance Sheet Test).
A CVL or Creditors Voluntary Liquidation involves a liquidator realising all of the company's assets then distributing the sums realised to creditors in the order of priority set down in law, which is set out in Rule 6.42 of The Insolvency (England and Wales) Rules 2016.
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, and take advice, to see if steps other than a liquidation is best for creditors. That review, with a Licensed Insolvency Practitioner, will enable you to plan the best outcome (for you as a director and for the 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
- 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.
If you would like a free meeting to discuss your company's affairs and the options open to it, including a CVL, please contact Chris Parkman on 01326 340 579 or email firstname.lastname@example.org
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