Creditors’ Voluntary Liquidation | What is it and how does it apply to me?

Aug 16, 2022

There are various ways to wind up or liquidate a limited liability company. Each method will essentially realise the assets of the company and distribute the proceeds to the company’s creditors or shareholders, but they are individually unique as to the processes that need to be followed.

One such method is a Creditors’ Voluntary Liquidation.

What is a Creditors’ Voluntary Liquidation?

Under a Creditors’ Voluntary Liquidation, the shareholders of a company themselves resolve to wind-up the company and then an insolvency practitioner will be appointed as liquidator.

This liquidator will then realise and distribute the company’s assets to its creditors or shareholders before striking the company off the register.

What is the process that needs to be followed?

If a company is insolvent, the shareholders may resolve to place the company into a Creditors’ Voluntary Liquidation and propose an insolvency practitioner to act as liquidator.

Notice of this proposed liquidator must be provided to the company’s creditors by the directors.

The creditors may, thereafter, decide to appoint a different liquidator to the one proposed by the shareholders. This is particularly important as the creditors are entitled to receive regular updates from the liquidator and may even form a committee to assist the liquidator realise the assets of the company.

What does this mean for me as a director?

There are a number of obligations on directors under Creditors’ Voluntary Liquidations:

  1. The directors must send notice to the creditors of the shareholders’ resolution to enter into Creditors’ Voluntary Liquidation (as stated above).
  2. The directors must send a statement of affairs to the company’s creditors.

Once the company enters into Creditors’ Voluntary Liquidation, the directors’ powers will automatically cease (unless the creditors state otherwise), with the liquidator becoming responsible for the day to day running of the business. In terms liability, the liquidator will send a report to the Secretary of State on whether any disqualification order should be made against the directors in relation to the company’s insolvency.

What does this mean for me as a shareholder?

Aside from resolving to place the company into Creditors’ Voluntary Liquidation, there is little to do for a shareholder once the liquidator is appointed, as the process is predominantly run by the creditors themselves.

The above only provides a brief and generic overview of Creditors’ Voluntary Liquidations, and professional advice should be sought (including from solicitors, accountants and insolvency practitioners) before any steps are taken to wind-up a company.

Here at Herrington Carmichael, one of our specialisms is assisting with the legal and procedural aspects of corporate insolvency, including Creditors’ Voluntary Liquidations. If you require further advice regarding any corporate insolvency matter in respect of your business, please contact Edward Beedham in our Corporate department. You can also email your query to edward.beedham@herrington-carmichael.com, call 01276 686222.

> Options available for company during financial difficulties

> Members’ Voluntary Liquidation | What is it and how does it apply to me?

> What is administration?

This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to your own particular matter before action is taken.

Edward Beedham

Edward Beedham

Solicitor, Corporate and Commercial
 01276 854666
e: edward.beedham@herrington-carmichael.com

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