5 Reasons To Choose A Creditors Voluntary Liquidation (CVL)

A Creditors Voluntary Liquidation (CVL) process is appropriate for companies that are insolvent, i.e. cannot pay their liabilities as and when they are due and increased creditor pressure or cash flow difficulties are key indicators of an insolvent business. When these circumstances arise, one of the only options left is to liquidate the business. If your business is in trouble and becomes insolvent beyond the point of rescue, you have the option of opting for a Creditors Voluntary Liquidation. Here’s why you should choose a CVL and how you can limit the financial and emotional damage of your business going into liquidation:

1. Control & Timing

Being prepared and knowing what to expect prior to the decision to liquidate will leave you far more in control of events and help to minimise the inevitable stress of the situation. Having the time to prepare and control the situation can make a huge difference. When compulsory liquidation orders are forced upon a company’s directors, it is often by frustrated creditors who’ve grown tired of waiting for the directors to act appropriately. Opting for a CVL before this situation occurs allows the company’s directors to choose the timing of their announcement to suit them best.

2. Prevent Further Legal Action

The very fact a CVL is voluntary reduces the chance of wrongful trading allegations being made against the directors, as entering into liquidation voluntarily demonstrates that they are being proactive in prioritising the interests of their creditors.

Being aware of what causes a compulsory liquidation can help business owners who find themselves in an unfortunate financial situation to be proactive in avoiding the lasting damage of compulsory liquidation. Instead, by knowing what causes a compulsory liquidation and how the process works, directors can consider alternative voluntary insolvency procedures, such as a Creditors Voluntary Liquidation instead.

3. Appointing a Liquidator

Under the rules of Creditors Voluntary Liquidation, directors can nominate the Insolvency Practitioner (IP) they’d like to act for them as Liquidator. An Insolvency Practitioner is someone who is licensed and authorised to act in relation to an insolvent individual, partnership or company.

This is very different to a compulsory winding up, where the government appoints an Official Receiver (OR) to take control of the liquidation process. As a licensed professional, the chosen IP can work together with the directors to make liquidation as easy and painless as possible. However, both parties must act with total transparency and in strict accordance with the law.

4. Claim Redundancy & Other Statutory Entitlements

One of the most stressful parts of ceasing to trade in contemplation of a liquidation is dismissing employees. Employees have various statutory rights and claims that can be made in the event of insolvency. The time frame of placing a company into CVL can be as little as 10-14 days from instruction. The payment by the government to employees are typically made within 2-6 weeks after the company is in CVL. By comparison, a compulsory liquidation process could take months to be implemented and cause delays in payment to employees.

It is worth noting here that directors may also be entitled to statutory claims against the government, including redundancy.

5. Minimise Costs

While typical administration costs for CVLs can run into thousands of pounds, the court fees, Secretary of State and OR costs associated with compulsory liquidation can be far higher.

Furthermore, these fees may be borne by hostile creditors in an attempt to seek financial redress, and they’re far more likely to make accusations of wrongful trading or other wrongdoing against directors in such a scenario. This could therefore jeopardize any opportunity of running another business again in the future following liquidation and in some instances result in personal liabilities for the directors. While both ORs and IPs are legally obliged to investigate a company’s history for evidence of wrongdoing, deciding to liquidate voluntarily and covering the costs of the process can mitigate the level of criticism directed towards directors.