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  • How a company is placed into Creditors’ Voluntary Liquidation (“CVL”)

    admin August 1st, 2011 Advice

    A Creditors’ Voluntary Liquidation is a procedure available to companies in financial distress, that provides a mechanism by which a company can wind up its affairs in an orderly manner, according to pre-determined timescales.  Of course, this process can be extremely stressful for all those involved, either directly or indirectly, but understanding the liquidation procedure can, to some extent, alleviate that pressure. 

    Before formally commencing the liquidation process, it is of course essential to take professional advice to establish what options are available (given the circumstances), as it does not always follow that a distressed company should naturally be placed into liquidation.

    To start the liquidation procedure, there is a requirement to hold a meeting of the board of directors, who amongst other things, need to resolve to convene meetings of members and creditors to place the company into liquidation.  At this Board Meeting, one of the company directors will also be authorised to sign the relevent notices convening the requisite meetings of members and creditors. 

    The Insolvency Practitioner advising, will despatch the notices to all members and creditors on behalf of the company.  It is normal for in excess of fourteen days notice to be provided to shareholders,  although this can be shortened in some circumstances if required.  The two meetings can and normally are held on the same day.

    In anticipation of the meetings, the Insolvency Practitioner will prepare (based on information provided by the directors and the company) a statement of affairs, which is a statement showing a breakdown of the company’s assets and liabilities, together with a report to the meeting, including various company information, extracts from financial statements and a trading history explaining the history of the company and ultimately the perceived reasoning behind its demise. 

    For a company to be placed into liquidation, the members must pass a special resolution.  It is  required that in excess of 75% of those voting (in accordance with their shareholding), whether by proxy or in person, vote for the special resolution in order that the company be placed in liquidation.  Assuming that the special resolution is adopted the company is formally in liquidation at this point.  The meeting will then pass a resolution appointing an Insolvency Practitioner to act as Liquidator. 

    At the meeting of creditors, all creditors present will be given the opportunity to read the statement of affairs (which is now accompanied by a statement of truth by the directors) and report, and may ask relevent questions to the directors.  The meeting will then seek to pass various ordinary resolutions (majority vote required in accordance with their claim in liquidation whether by proxy or in person).  These resolutions will include but are not limited to:

    •ratifying the appointment of the Liquidator or resolving to appoint an alternative Liquidator.
    •choosing whether to establish a liquidation committee and if so, appointing its members.  A blog explaining the roles of a liquidation committee will be released in the near future.
    •establishing the basis of the Liquidator’s remuneration.

    With the company in Liquidation, it is now the Liquidators responsibility to deal with its assets, creditors and ultimately its closure.  A blog describing role of the liquidator will follow shortly.

    The image used for this blog is courtesy of Renjith Krishnan: http://www.freedigitalphotos.net/images/view_photog.php?photogid=721