Creditors’ Voluntary Liquidation (CVL)
When a company can’t pay its debts, the directors may decide it’s time to voluntarily put it into liquidation. This is known as a Creditors’ Voluntary Liquidation (CVL).
The company hasn’t been forced to enter into liquidation (hence ‘voluntary’), which differs to ‘compulsory liquidation’ whereby a company’s creditor (someone owed money) can start legal action to include petitioning to wind up the company.
There are some key advantages to a CVL procedure:
• A quick and efficient way of bringing the company to a close.
• Where the position is terminal, closure avoids the risks of continued trade and worsening the position for creditors, which could have personal ramifications for directors.
• The process is instigated by the directors, otherwise avoiding potentially long delays in the court process for employees and creditors alike.
• The process will bring an end to pressure from banks and other creditors (including HMRC), as the appointed Liquidator deals with creditor queries.
• The process will bring clarity to what can be an uncertain time for employees, allowing for claims for arrears of wages, holiday pay, unpaid pension contributions, Pay in Lieu of Notice (PLN) and redundancy, to be dealt with by the government.
There are however some disadvantages of CVL to be aware of:
• The company will need to close down and stop trading (there are alternative processes available if this isn’t not what you want e.g., Administration or Company Voluntary Arrangement [CVA]).
• Any personal guarantees will crystallise (if not already done so).
• Director conduct will be investigated and action taken if inappropriate.