Where a company is insolvent and no longer commercially viable under current economic conditions then the directors may determine that the company should cease to trade and be placed into creditors’ voluntary liquidation (CVL). The directors will take steps to call and convene meetings of members and creditors at which the company will be wound up. A CVL is the most common way for directors and shareholders to deal voluntarily with their company‘s insolvency.
A special resolution to wind up the company voluntarily is required to be passed by the members in general meeting together with an ordinary resolution appointing an Insolvency Practitioner as Liquidator. A CVL commences on the passing of the resolution to wind up. The creditors’ meeting is held on the same day as the members’ meeting but it can be held up to 14 days later. The nominated Liquidator’s powers up to the convening of the creditors’ meeting are restricted to taking control and protecting assets but do allow the disposal of perishable stock. Copies of the resolutions passed and formal notice of the Liquidator’s appointment are filed at Companies House and also advertised in the London Gazette.
The creditors’ meeting provides information regarding the company’s financial position in the form of a Statement of Affairs being a Statement of Truth signed by one or more directors. A director must preside as Chairman of the meeting. The Statement of Affairs is accompanied by a report on the company’s affairs prepared by the Insolvency Practitioner nominated as Liquidator based on information provided by the directors.
Creditors are entitled to ask questions regarding the company’s affairs upon which they seek clarification or which they may believe will assist the Liquidator in fulfilling his statutory duties.
A resolution will be put to the meeting for confirmation of the members’ nomination as Liquidator, but creditors may nominate an alternative Insolvency Practitioner as Liquidator. If a poll is required then a resolution is passed by a simple majority in value of those creditors present and voting in person or by proxy.
Once the appointment of Liquidator has been resolved the creditors may, if they wish, appoint a Liquidation Committee comprising a minimum of 3 and maximum of 5 creditors whose functions include approving payment of a class of creditors in full, approving compromises with debtors or creditors, receiving progress reports from the Liquidator and fixing the bases of the Liquidator’s fees and certain disbursements.
Copies of the Statement of Affairs and report presented at the statutory creditors’ meeting are sent to all known creditors immediately after the meeting.
A copy of the Statement of Affairs is filed at Companies House within 5 business days of the creditors’ meeting.
CVL following Administration
It is also possible for a liquidation to proceed as a CVL without the need for a creditors’ meeting, where it immediately follows upon the conclusion of an Administration of the company usually where there are funds for unsecured creditors. The Liquidator may be the former Administrator, or such other Insolvency Practitioner previously approved by the creditors during the Administration.
The Liquidator must give notice of his appointment to the London Gazette, Companies House and to all creditors.
A wide range of powers are afforded to the Liquidator to facilitate realisation of the company’s assets, bring or defend legal actions, examine antecedent transactions and the conduct of the directors and agree creditors’ claims. Reports to members and creditors are sent in accordance with statute. The Liquidator will distribute any surplus funds to creditors in accordance with statute. The Liquidator has to furnish a conduct report to the DBIS – insolvency Service on each person who acted as a director in the three years preceding the liquidation.
Upon completion of the CVL the Liquidator is required to call and convene meetings of members and creditors to lay before them an account of the liquidation and seek his formal release. Such meetings have to be Gazetted and the return thereof filed at Companies House within seven days of conclusion.
The company will be automatically dissolved 3 months after registration of the final return at Companies House. The company’s books and records may be destroyed by the Liquidator one year from the dissolution.