Creditors Voluntary Liquidation (CVL) Disputes

A CVL is the most common type of liquidation and is usually instigated by the directors because the company is insolvent. Although a court order is not required for a CVL, it is a formal insolvency procedure used in circumstances where the business is unable to meet its debts as they fall due or is close to reaching that stage.

The directors, in compliance with their fiduciary duties, take this step to voluntarily ‘wind the business up’. It requires the appointment of an Insolvency Practitioner as liquidator following a meeting of the company directors, shareholders/members and creditors. Once the appointment has been made, the company will cease trading and the Insolvency Practitioner will take over responsibility for the company and the realisation of its assets.

The first step is a board meeting for the directors to agree:

1. 1. that the company should be placed into a CVL due to the insolvent nature of the business
   2. that a meeting needs to be convened for the shareholders and creditors, and
   3. the selection of an Insolvency Practitioner as liquidator

Notices must be served on the shareholders and creditors regarding the meeting. The Notices must be advertised in the London Gazette a minimum of seven days in advance of the meeting.

The board of directors has an obligation to continue to trade but at the same time must be mindful to preserve the company’s assets for the creditors which means not:

1. 1. Extending credit facilities to obtain supplies or goods
   2. Using any bank overdraft facility
   3. Disposing of company assets, unless justified to meet essential costs of running the business
   4. Taking steps that would favour one creditor over any other creditors
   5. Taking steps that could penalise unsecured creditors in favour of a secured creditor

At the shareholders meeting, a Resolution is agreed to place the company into a CVL and to choose an Insolvency Practitioner:

1. The liquidation commences on the passing of this Resolution
2. The directors cease to have control of the company

At the subsequent Meeting of Creditors, the shareholders choice of Insolvency Practitioner is either agreed or the creditors appoint one of their own choosing. On appointment, the control of the company vests in the Insolvency Practitioner acting as liquidator. The Insolvency Practitioner will take steps to achieve the best market value for the assets of the company and distribute the proceeds to the creditors.

The Insolvency Practitioner will also conduct an investigation into the company affairs and its directors to consider whether there is any wrongdoing or breach of fiduciary duties. In order to discharge this duty, the Insolvency Practitioner will require all company officers to cooperate with his requests for information, meetings and interviews.