Creditors' Voluntary Liquidation (CVL)

A CVL will bring closure and provide clarity to all stakeholders
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A Creditors Voluntary Liquidation (CVL) is a formal process that company directors can initiate to bring about the end of their business when it becomes insolvent. Insolvency is defined by legislation as the inability to pay debts as they become due or when assets are less than liabilities.

In a CVL, the company's assets are sold off to pay its creditors, and any remaining funds are distributed among shareholders. This process is overseen by a licensed insolvency practitioner who acts as the liquidator.

It's important to note that a CVL is a voluntary process initiated by the company's directors, rather than being forced upon them by creditors. This can be a difficult decision to make, but it can be the best course of action for all parties involved.

If you're considering a CVL for your company, it's essential to seek professional advice from an experienced insolvency practitioner. They can guide you through the process and help you make informed decisions about the future of your business.

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Common questions about CVLs

Frequently Asked Questions

A company is insolvent (unable to pay its debts) if it either does not have enough assets to cover its debts (i.e. value of assets is less than amount of liabilities), or if it is unable to pay its debts as they fall due.

As a company Director there are three tests you can apply to your company to check which whether it's solvent or insolvent.

1. Cash Flow test Can the company pay bills and liabilities as they fall due? If a company is behind with VAT, NI and PAYE or struggling to keep to creditor's payment terms, there are probably cash flow issues. If this is the case that the company may be insolvent.

2. Balance Sheet test The value of assets should exceed the value of the company's liabilities. If this is not the case the company is most likely insolvent.

3. Legal action test Is the company under threat of, or currently subject to legal Action? This could be by way of a County Court Judgement (CCJ), a statutory demand, or a winding-up petition for monies owed which the company could not pay, then the company cannot be solvent until the claim is settled or dismissed in court.

If your company has fails any of the tests above, then the company would most likely be insolvent. As a company director, you must act as soon as possible to ensure the situation does not worsen.

As a director, it is important to understand the implications of a CVL (Creditors' Voluntary Liquidation) on your role and the company. When a decision is made to proceed with a CVL, the company will typically stop trading immediately. This provides some relief to directors as they no longer have to deal with the intense pressure from creditors. By taking this proactive step, directors can avoid the risk of wrongful trading.

It is crucial to note that a CVL is a formal insolvency process that requires the appointment of a licensed insolvency practitioner. The practitioner will take control of the company's affairs and assets, and work towards realizing the maximum value for creditors. As a director, you will need to cooperate with the practitioner and provide them with all the necessary information to facilitate the process.

It is also important to understand that a CVL can have personal implications for directors. If you have given personal guarantees or provided security for company debts, you may still be liable for these obligations even after the company has been liquidated. Therefore, it is essential to seek professional advice before proceeding with a CVL.

If the current company undergoes a Creditors' Voluntary Liquidation (CVL), the directors will have the opportunity to move on from the company. If there is no disqualification order, they can choose to set up a new company. However, during the CVL process, the liquidator will investigate the directors' actions in the period leading up to the liquidation. If there has been any wrongful trading or failure to fulfill duties, the directors could face disqualification for up to 15 years.

In certain cases, directors may opt for a pre-pack liquidation, which allows them to purchase the assets of the existing company at market value and start a new company under a different name. This process is informally known as phoenixing.

The answer to this question depends on the specific terms of your loan agreement. Both loan schemes require monthly repayments, and if your company is unable to maintain them, the outstanding amount will be treated as an unsecured debt.

It's worth noting that while BBLS and CBILS loans under £250,000 do not require personal guarantees, some lenders may still implement them. By signing a personal guarantee, you agree to repay either all or a portion of the loan. If your company fails to repay the loan, the personal guarantee can be "crystallized," and the lender may pursue you personally for the outstanding amount.

If you find yourself struggling to make repayments, it's best to reach out to your lender as soon as possible to discuss your options. With careful planning and communication, you may be able to find a solution that works for both you and your lender.

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