Creditors’ Voluntary Liquidation

This applies where a Company cannot pay its debts and where the Directors wish to cease trading. It is they who initiate the procedure by calling a meeting of the Shareholders to pass a resolution to wind up the Company and a Meeting of the creditors to confirm the appointment of a Liquidator who will then work, often under the supervision of a Creditors’ Committee, to realise the assets and then to distribute them to those entitled to them, again in the statutory order of priority.

A Creditors Voluntary Liquidation ('CVL') is only appropriate where a Company is insolvent i.e. its liabilities exceed its assets and/or it cannot pay its debts when they fall due and there is no prospect of the company continuing to trade. The Directors and Shareholders drive this procedure. However, it is the creditors who have the final vote with regard to the choice of the liquidator.

A summary of the procedure is as follows:

Step 1: Meeting of the Board of Directors

This meeting has the following goals;

The directors resolve to recommend a CVL to the shareholders on the grounds that the company is unable to pay its debts;
It authorises the convening of an Extraordinary General Meeting ('E.G.M.')of the Company’s shareholders and a meeting of the Company’s creditors; and
Nominates a Director who will preside at the E.G.M. and at the creditors’ meeting.

Step 2: The E.G.M.

This meeting is usually called on 14 days notice unless at least 95% of the shareholders waive their entitlement to this notice. The notice is sent with a proxy form and must state the, date, time and place of the meeting and must set out the Resolution to wind –up the Company in full.

The E.G.M. must have a quorum of at least 2 shareholders either represented or attending this meeting unless it is a single member company. The purposes of this meeting are:

To pass the Extraordinary Resolution to wind up the Company- at least 75% of the votes cast must pass this resolution, and
To pass an Ordinary Resolution, on a simple majority of those votes cast, to appoint a liquidator.
If a liquidator is appointed at the E.G.M. he has limited powers until after the creditors’ meeting.

Step 3: The Creditors’ meeting convened in accordance with Section 98 of the Insolvency Act 1986

This meeting is convened on 7 days notice and must be advertised in the London Gazette, and 2 newspapers circulating in the locality of the company’s principal place of trade. The meeting must be held for a day not later than 14 days after the E.G.M.

The notice is sent with a proxy form and must state the, date, time and place of the meeting. In addition, it must state a time not earlier than 12.00 noon on the business day before the meeting by which proxies must be lodged, and either:

The name and address of an Insolvency Practitioner ('IP') who will furnish information to creditors before the day of the meeting, or
A place in the relevant locality where on the 2 business days before the date of the meeting a list of names and addresses of the company’s creditors will be available for inspection.

To entitle a creditor to vote at the meeting, they must lodge a statement of claim either before or at the meeting.

A Director must prepare and lay before the meeting a statement of affairs of the Company, which details the assets and liabilities and has been sworn by a Director before a solicitor or Commissioner of Oaths.

The meeting appoints one or more liquidators, who must provide the chair with a statement that they are licensed IPs and consent to act in relation to the Company. The liquidator need not be the same as that, if any, who was appointed at the E.G.M. The liquidator’s appointment is based on a majority of the value of votes cast.

In addition, the meeting may appoint a Liquidation Committee to assist the liquidator in performing his functions. A Liquidation Committee must consist of a minimum of 3 or maximum of 5 creditors.

A liquidator will then realise the assets of the company for the benefit of all creditors in line with their statutory order of priorities.

Following his appointment, the liquidator has a duty to make a submission on the conduct of those directors in office in the three years preceding his appointment to the Department of Trade and Industry, which may lead to a disqualification order preventing those directors from being a director for a 2-15 year period. See Director’s disqualification.

If you are a Director of a Company which is in financial difficulties, we can offer a free consultation to discuss these difficulties and advice on the most appropriate way to proceed taking into account, the aims of the Directors, the extent of the difficulties and the responsibilities of a Director associated with a limited Company experiencing financial difficulties.

If you are a creditor of a Company experiencing financial difficulties, we can assist you in taking the appropriate action to maximise your recovery, or in the case of a customer company which is facing CVL, we can represent you at that meeting, ensuring that your best interests are catered for.

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