During times of financial hardship, companies may find themselves in a tough spot, unsure of their future. With the weight of mounting debt, creditors’ demands, and the inability to meet financial commitments, the situation can be overwhelming. However, there is an answer to this issue: Company Voluntary Liquidation (CVL). This alternative to bankruptcy allows companies to efficiently settle their debts to creditors while also allowing shareholders to receive a return on their investment. CVL also helps preserve the company’s reputation, allowing it to start anew. This guide will take you through the intricate CVL process and show you how to get through financial difficulties.
What is Company Voluntary Liquidation?
Company Voluntary Liquidation (CVL) is a legal process that allows a company to voluntarily bring its affairs to an end and liquidate its assets to repay creditors. Unlike compulsory liquidation, which is initiated by creditors, CVL is a proactive decision made by the company’s directors and shareholders to wind up the business.
Is Company Voluntary Liquidation the Right Choice for Your Business?
It is typically chosen when a business is no longer viable and cannot pay its debts. It is the fastest and most cost-effective way of closing a business. The factors needed to be understood are:
- Insolvency
Corporations in financial distress may consider CVL if they are unable to meet their debt repayments. This could be due to a decrease in sales, over-borrowing, or a decrease in consumer demand. If your business has encountered similar difficulties, CVL could be a suitable solution to remedy the situation.
- Realistic Recovery Options
Before opting for CVL, it is essential to assess the viability of other recovery options. Consider if restructuring, refinancing, or seeking investment could help your company regain stability. If such alternatives seem unlikely or unfeasible, CVL might be the best option.
- Director’s Duties
It is the legal responsibility of a director to make decisions that are in the best interests of the company and its creditors. Therefore, making a conscientious decision to pursue a Creditors’ Voluntary Liquidation could be a wise choice.
- Seek Professional Advice
The decision to pursue CVL is not one to be taken lightly. It is advisable to seek professional advice from insolvency practitioners who specialize in CVL procedures. They can provide expert guidance, assess your company’s financial situation, and help you make an informed decision about whether CVL is the right choice for your business.
The Company Voluntary Liquidation Process
Navigating through the liquidation process requires a clear understanding of the sequential steps involved. Let’s explore each stage in detail:
Director’s Resolution
The CVL process commences with a director’s resolution. As directors, you must convene a board meeting to propose the decision to wind up the company voluntarily. This resolution must be supported by a majority of the company’s directors.
How do Directors Initiate the CVL Process?”
Directors initiate the CVL process by convening a board meeting and passing a resolution in favour of voluntary liquidation. This decision should be supported by a majority of the company’s directors.
- Shareholder’s Meeting
Following the director’s resolution, a shareholder’s meeting is convened. During this meeting, shareholders are notified of the company’s decision to wind up voluntarily. They also have the opportunity to appoint an insolvency practitioner to act as the liquidator.
- Asset Liquidation
After the notification period has expired, the liquidator is responsible for selling the company’s assets. The liquidator must secure the best possible price for the assets to ensure that creditors are repaid with the largest possible amount. The liquidator must also ensure that the assets are sold at a fair market value.
- Distribution of Assets
Once the assets have been sold off, the money is given out to those who the company owes. Secured creditors are given top priority, and any leftover money is split in accordance with the size of unsecured creditors’ claims.
- Dissolution
The last step of the CVL process is winding up the company. Once all the assets have been shared out and all legal requirements have been met, the business is officially shut down, and the voluntary liquidation is finished.
Conclusion
Navigating financial turmoil is a challenging endeavour for any business. However, with the option of Company Voluntary Liquidation, there is hope for a controlled and responsible resolution. CVL offers an opportunity for struggling companies to address their debts, protect directors, and provide a fresh start.