Insolvency

Creditors' Voluntary Liquidation (CVL)

A CVL is the most common method of placing a company into liquidation. The process will ultimately bring the company to an end.

Directors have a primary duty to act in the best interests of the Company, however, once they become aware, or should be aware, that the Company is in an insolvent state then this changes and their duty is then to act in the best interests of the creditors generally.

A company is insolvent if:

It is unable to pay its debts as they fall due.
Its assets are less than the amount of its liabilities, taking into account its contingent and prospective liabilities.

In the event that creditors of the company wind-up the company in the Court, a Liquidator would have a duty to investigate the affairs of the company and consider the actions of the directors. If the directors continue to trade the company after they are aware, or ought to have concluded, that it is insolvent, they may be exposed to personal liability for any loss to the creditors.

Therefore if you are the director of an insolvent company you should not delay in taking advice. We at Grosvenor Partners LLP will advise the directors on the best way to proceed. This may involve a restructuring or refinancing of the company or, as a last resort, to liquidate the company. Initial advice is free and without obligation.

The process:

Directors pass a board resolution to convene an extraordinary meeting of members (EGM) to consider a resolution to wind up.
A Statement of Affairs is prepared and sworn by the Directors.
The EGM is convened and members pass a resolution to appoint a Liquidator.
A Meeting of Creditors is then convened to ratify the members’ appointee or to appoint an alternate Liquidator.

We at Grosvenor Partners LLP prepare all the necessary paperwork and work with the directors and shareholders throughout the CVL process, and are available to discuss and deal with any issues that arise.

Once the Liquidator is appointed he has a duty to:

Realise the assets of the company
Make distributions to creditors, where there are sufficient assets.
Investigate the company’s affairs.

Reasons for electing to place the company into a CVL include:

Where the directors have identified that the company is insolvent
Where the Directors have concluded that the company cannot avoid becoming insolvent
When the directors of the company wish to wind it up, but are unable to swear a “declaration of solvency” (See MVL).

Please call Mark Bassford FCA or Tess Whitney on 020 7213 0470 if you are the director or shareholder of a company and believe that it is insolvent, or would like further advice. Alternatively ask your company’s existing professional advisors to contact us to discuss the options available.