Creditors Voluntary Liquidation and Compulsory Liquidation – Insolvent Liquidations
Creditors Voluntary Liquidation
A Creditors Voluntary Liquidation (CVL) is the procedure to wind up an insolvent company where the value of the assets of the company are not enough to be able to clear all of the debts. The decision to proceed with a Creditors Voluntary Liquidation occurs where the shareholders, usually at the directors’ request, decide to put a company into liquidation because it is insolvent.
A CVL is under the effective control of the creditors, who can appoint a liquidator of their choice.
When is a CVL used?
The Creditors Voluntary Liquidation process is used when a company has come to the end of its useful life. A CVL is the most common way for directors and shareholders to deal voluntarily with their company’s insolvency.
Ultimately it is the directors that commence the proceedings in a Creditors Voluntary Liquidation. The directors will formally resolve that the company cannot continue to trade because of its debts, and they appoint a Licensed Insolvency Practitioner who prepares a statement of affairs to be presented to the creditors.
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A compulsory liquidation (or compulsory winding up) is instituted by an order made by the court, usually on the petition of a creditor, the company or a shareholder. There are a number of possible reasons for making a winding-up order. The most common is because the company is insolvent.
Insolvency is usually established either by:
- Failure to comply with a statutory demand requiring payment within 21 days
- By execution against the company’s goods being returned unsatisfied
A winding-up petition may also be presented by the Secretary of State on the grounds of public interest.
The Official Receiver
In a compulsory liquidation the function of a liquidator is in most cases initially performed by an official called the Official Receiver. The Official Receiver is an officer of the court and a member of the Insolvency Service, an executive agency within the BIS (Department for Business Innovation & Skills).
In most compulsory liquidations, the Official Receiver becomes the liquidator immediately on the making of the winding-up order.
The Licensed Insolvency Practitioner
Where there are significant assets, a licensed insolvency practitioner will usually be appointed to act as liquidator in place of the Official Receiver. This happens either at a meeting of creditors convened for the purpose or directly by the Secretary of State. Where an insolvency practitioner is not appointed the Official Receiver remains liquidator.
Where a compulsory liquidation follows immediately on from an administration, the court may appoint the former administrator to act as liquidator. In such cases the Official Receiver does not become liquidator. An administrator may also subsequently act as liquidator in a creditors’ voluntary liquidation.
For more information, help and advice about Compulsory Liquidation, contact us or call us on 0207 831 1234.