Liquidation is the most drastic insolvency process. The result is a permanent lockdown of your business. Liquidation gets ordered by a court or can be a creditor’s voluntary liquidation [CVL] or a member’s voluntary liquidation [MVL]. Let’s get to know more about the creditor’s VL.
What is CVL?
CLV is a common kind of liquidation, which gets voluntarily started by the shareholders of the company. A resolution gets signed by the shareholders to liquidate and a liquidator gets appointed. Liquidator professionals from licensed Insolvency Experts can help you handle the complex process quickly, thus reducing the stress with consistent creditor calls.
The liquidator takes control of your business wind up affairs in a systematic and fairway. The professionals ensure that the company’s creditors benefit as many repayments as possible. The creditor’s voluntary liquidation option allows businesses to appoint liquidators as well as close down the operations without any involvement from courts and lawyers.
The liquidation process follows according to the rules before the company gets closed and deregistered. Remember, a business with an insolvency petition against it in the court cannot resolve to shut down via CVL. It is a rule intended to prevent from hampering creditors’ actions.
Benefits of self-imposed CVL
A solvent business can enter MVL. On the other hand, an insolvent company can individually choose to apply for MVL or can be forced to undergo court-ordered liquidation. Closing the company via CVL is a great option for insolvent businesses for multiple reasons.
- The company is already in debt and has run out of funds, so paying creditors and operating a business is impossible.
- The company is small and voluntary administration is not viable.
- The company has no valuable assets or no assets to sell and pay its creditors.
- The business is not capable to recover their past losses and is already trading at a loss.
Businesses can even choose CVL because of potential director’s benefits
- Liquidation can help directors avoid personal tax liability.
- Shutting an unviable company allows us to end the worries and stress of trying to save the business.
- Liquidation stops the creditors from demanding or harassing for payments.
- Winding an insolvent business allows you to do other things or start a new business.
What involves in the CVL process?
- Appoint a liquidator or insolvency practitioner – The shareholders appoint and pay the certified liquidator. However, creditors need to approve the liquidator chosen at the creditor’s meeting.
- Director’s meeting – A director’s meeting is held to verify the insolvency status of their company. In a small company, there is a handful of directors so the process gets conducted fast.
- Shareholders meeting – Before the creditors meeting there is a need for shareholder’s meeting to approve the liquidation. Shareholders’ meetings are conducted instantly if 90% of shareholders agree to the short notice notification. If they don’t agree then the meeting is held after 14 days. If the liquidation decision of the director gets approved by the shareholder, a liquidator is appointed.
- Creditor’s meeting – Generally, the shareholders and creditors’ meeting is arranged on the same day. Creditors receive 14 days’ notice for better practice.
- Liquidate company assets – The duration is taken to finish the asset sales differ depending on the case complexity.
After assets get realized the creditors get paid and remaining is distributed among the shareholders. Finally, the liquidator submits documents with ASIC and makes a company deregistering requests.