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What is a Creditors Voluntary Liquidation?

A creditors voluntary liquidation (or company voluntary liquidation) is where  the directors of a distressed company, with agreement of the shareholders, voluntarily elect to place the business into liquidation in in order to pay its debts (note this is different from compulsory liquidation where it is the creditors who choose to liquate the company, not the directors).

 

Once the directors have recognized that the company cannot satisfy its debts, usually after a rescue strategy has failed or deemed inappropriate.

The process is simpler and cheaper, with the liquidation occurring during a meeting of shareholders rather than during a court hearing.  The directors must still appoint a licensed insolvency practitioner as liquidator to wind up the company, complete their investigations into what went wrong, realise the business assets and distribute dividends to creditors.

Unsecured creditors have the right to form a creditors liquidation committee, meaning that they will receive regular updates from the liquidator.

Secured and preferential creditors will be paid before unsecured creditors.  All unsecured creditors are treated equally.  If there are enough funds after dividends have been paid to secured and preferential creditors, and after costs have been paid, then unsecured creditors will each receive a share of the balance.  Unsecured creditors can write off a debt in their accounts, and can claim VAT Bad Debt Relief 6 months thereafter from HMRC.

Once all assets have been realised, all creditors claims have been adjudicated, liquidation expenses settled, and creditors claims have been settled wherever possible.

If you are considering whether a Creditors Voluntary Liquidation is the most appropriate option for your business please contact us today to arrange a business review meeting: