As a business owner, you surely have a lot on your plate. Besides the day-to-day operations, there are always financial worries lurking around the corner. One of the worst case scenarios that could happen is your business going bankrupt.
But, what happens then and how does that work?
One of the ways to deal with company insolvency is through Creditors Voluntary Liquidation, or CVL, a process that could help your business to continue trading or, at least, ease the burden of debts. In this blog post, we’ll give you a rundown of what CVL is, what it means for your business, and how to proceed if you are considering this option.
What is a Creditors Voluntary Liquidation?
A Creditors Voluntary Liquidation, also called voluntary liquidation for creditors, is a formal process that allows an insolvent company to be wound up. The process is usually directed by the board members, the director, or the shareholders of the company, depending on the organisational structure of the company.
They must call a meeting with the creditors, where they present their case and the reasons why the business is in financial trouble. If more than 75% of the creditors present agree to the liquidation of the company, the liquidator takes over the company’s assets and distributes them to the creditors.
What Does a CVL Mean for Your Business?
In short, it means that your company will cease trading, and all employees will be made redundant. The liquidator will sell off all assets to pay the creditors as much as possible, which means there will be no more business operations for your company.
However, the process does have a few benefits for business owners. Firstly, it means that the company will be relieved of its debts. If the company has any other legal actions taken against it (i.e., lawsuits), then those will be put on hold to ensure that creditors are paid. It allows your company to start fresh and give you the opportunity to start another business without being held liable for past debts.
How To Proceed With Creditors Voluntary Liquidation?
To start the CVL process, you must pass a special resolution in a board of directors meeting, setting out the motion for the CVL. Following this, an authorised professional will be appointed to submit a notice for the liquidation to Companies House.
Legal guidance is important throughout the process, so it is advisable to consult with a licensed insolvency practitioner who will ensure you meet all legal requirements and guide you throughout the process.
Options before considering CVL
Before considering CVL, it is always important to check all options available for managing the financial well-being of your business. This might include renegotiating payment terms, reducing staff, or securing temporary financial support. Taking such steps may help you avoid a CVL, and allow your business to continue trading.
Take Home
In conclusion, going bankrupt does not necessarily mean the end of a business. CVL offers a chance for business owners to start again without any debts, while still ensuring the creditors are paid.
However, it is not an easy decision to make, and it is recommended to explore all other options before entering into a CVL. If a CVL is the only option, it is important to seek professional advice and get the right support to ensure the process runs smoothly and with little fuss.