Corporate Insolvency

Creditors Voluntary Liquidation (CVL)

Creditors’ Voluntary Liquidation is a formal process for insolvent companies whereby the directors voluntarily arrange to place the company into liquidation and as a result, bring the business to a close.

This is the most appropriate way of formally closing the business should there be no real prospect of the company being rescued.

In law, if a company is insolvent then the directors have a duty to protect the interest of the company’s creditors.

How does a company enter Creditors Voluntary Liquidation?

1. Once an initial meeting has taken place with the directors and it has been agreed that a CVL procedure would be best suitable for the company, we will then begin to assist the directors to fulfil their duty to wind up the company.
2. We will begin to gather the necessary information about the company to allow us to prepare accurate documentation.
3. The next step is to inform the shareholders that the company is insolvent and must cease trading.
4. A shareholders’ meeting must be held to appoint a licensed Insolvency Practitioner to wind up the company. This decision must be ratified by creditors in a formal decision-making procedure.
5. Once a Liquidator is appointed, all powers as director will cease and the Liquidator obtains full control of the company’s affairs.

What does the Liquidator do once appointed?

The Liquidator has a statutory duty to perform the following:

• Realise the company assets for their maximum value
• Assist employees with submitting their claims to the Redundancy Payments Office
• Provide reports to the creditors and shareholders in relation to the progress of the liquidation
• Conduct an investigation into the conduct of the directors and report to The Insolvency Service
• Where possible, distribute a return to creditors and shareholders
• Once all matters in the liquidation are concluded, a final report is issued to creditors and shareholders and the company is then dissolved from the register at Companies House.

Members Voluntary Liquidation (MVL)

Members Voluntary Liquidation (MVL) is a process that enables shareholders to appoint a Liquidator to formally close down a solvent company.

Creditors are to be paid in full and have little input on the liquidation process. The emphasis is to maximise the return to shareholders.

There are tax benefits in closing a company via the MVL route. It also provides peace of mind to the directors and shareholders that the company is closed by way of a formal process by a qualified professional.

Why enter a Members Voluntary Liquidation?

It can be noted that Members Voluntary Liquidation is often used to obtain tax benefits. Dividend distributions in an MVL are usually classified as a Capital distribution rather than an Income distribution and would therefore be subject to Capital Gains taxation.

This has lower taxation rates than income tax, especially with the availability of the reduced rate provided by Business Asset Disposal Relief (formerly known as Entrepreneur’s Relief. It should be noted, however, that Business Asset Disposal Relief is subject to certain qualifying criteria.

How does a company enter a Members Voluntary Liquidation?

1. Directors are required to make a sworn declaration that the company is solvent, can pay all its creditors including interest within 12 months and can meet all its contractual obligations.

1. Once the directors are reasonably certain that the company will be able to meet all obligations before proceeding with an MVL, a shareholders/members’ meeting is convened to appoint a licensed insolvency practitioner as liquidator.

What does the Liquidator do once appointed?

Once appointed, the Liquidator is responsible for the following:

• Realisation of the company’s assets
• Settlement of the company’s remaining debts
• Distribution of surplus funds to the company’s shareholders
• Once the liquidator has completed these formalities and received clearance from HMRC, the company will be dissolved and formally removed from the companies register.