What Happens With The Voluntary Liquidation Of Creditors?

When the shareholders and/or directors of a company feel they can no longer service their debts

, they may decide to undertake Creditors Voluntary Liquidation (CVL). CVL is a complex and potentially time consuming undertaking and is not to be taken lightly, though it can be the best option for a company that feels it is no longer a viable business entity.

The first step in the procedure of Creditors Voluntary Liquidation is for the directors to call a board meeting and resolve that due to unsustainable debt liabilities, the company can no longer continue to trade and that creditor and shareholder meetings be called to obtain a collective resolution to place the company into liquidation. A director, typically the Managing Director is chosen to chair ensuing meetings with creditors and shareholders.

The shareholder meeting precedes the meeting with creditors. The meeting with creditors must be convened within 15 days after the shareholders resolve to dissolve the company. Generally this meeting is held immediately after the shareholders meeting. A resolution of 75% of the shareholders determines the appointment of a liquidator, but this appointment needs to be ratified at the creditor meeting.

At the creditors meeting, creditors are given the opportunity to ask all parties involved in the Creditors Voluntary Liquidation process questions regarding all company affairs. After this, a liquidation committee is formed, consisting of at least 3 and no more than 5 creditors as well as company representatives (usually from the board of directors) to assist the liquidator. Often a committee cannot be formed, so resolutions are passed regarding confirmation of the liquidator, his or her remuneration, their selection of solicitors and other legal formalities. If a majority of creditors wish to, they can change the liquidator and an alternative must be decided upon to take control of the companys affairs.

Companies and persons considering Creditors Voluntary Liquidation should weigh the pros and cons of this procedure. Provided proper business procedure has been taken, the directors are less likely to be faced with accusations of wrongful trading action. However, they will be subject to investigation by the appointed liquidator, who by law must disclose his findings to the Department of Trade & Industry.

The benefit of CVL to creditors is that they receive immediate recovery of the VAT element of their liability, though usually they also receive a poor dividend repayment.

Creditors Voluntary Liquidation is a very complex issue and cannot be comprehensively covered in a brief outline. If you are considering taking this step, consult an expert in the field and discuss your particular details with them before taking action.

by: Ashlyn Henry

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