A creditors’ voluntary liquidation (“CVL”) occurs when the shareholders, usually at the directors’ request, decide to put a company into liquidation because it is insolvent. Either the company cannot pay its debts as they fall due or it has more liabilities than assets.
The purpose of the CVL is to appoint an insolvency practitioner who has a duty to collect the company’s assets and distribute them to its creditors in accordance with the law. That person is the liquidator.
What involvement do creditors’ have in putting a company into CVL?
A meeting of creditors must be convened at a venue convenient for the majority of creditors, which will also be advertised publicly.
One or more of the directors will sign a Statement of Affairs (“SofA”), which summarises the assets and liabilities (including details of creditors’ claims). A summary of the SofA will be made available to the creditors meeting. The insolvency practitioner whom the shareholders nominated as liquidator will assist the chairman of the meeting, who must be a director. A report of the company’s history up to liquidation will be presented, giving an explanation of the reasons for the insolvency, and creditors will be invited to question the director.
The creditors’ then vote to appoint a liquidator. The votes are based on the values of creditors’ claims.
Should the creditors’ choice of liquidator be different from that of the shareholders, the creditors’ choice prevails.
What are the powers of a liquidator?
A liquidator’s powers are wide and include powers to sell the company’s assets, to bring and defend legal proceedings and to pay dividends to the company’s creditors’.
Does the liquidator pay unsecured creditors’ the money owed to them?
Secured and preferential creditors’ are paid before unsecured creditors’. Secured creditors’ are those that have some form of security over a company’s property (for instance a bank with a fixed and floating charge debenture). Secured creditors’ are entitled to be repaid their debt out of the proceeds of sale of the secured assets in priority to unsecured creditors’.
Preferential creditors’ are a special category of unsecured creditor. They include certain debts due to employees and the Redundancy Payments Service and are paid in priority to all other unsecured creditors’.
The liquidator will pay a dividend to unsecured creditors’ if enough funds have been realised from the company’s assets after paying costs, secured and preferential creditors’.
When all the claims have been agreed a dividend representing a percentage of each creditor’s total admitted claim will be paid, based on the funds available.
When is the liquidation complete?
The liquidation is complete when all the assets have been realised, all creditors’ claims have been adjudicated (where there are sufficient funds) and net realisations after expenses of the liquidation have been distributed to the creditors’.
To conclude the liquidation, the liquidator will call final meetings of creditors’ and shareholders and present a final receipts and payments account, together with a report showing how the liquidation has been conducted.