Creditors’ Voluntary Liquidation – CVL

Liquidation (or ‘winding up’) is the most common type of corporate insolvency procedure. Liquidation is the formal winding up of a company’s affairs entailing the realisation of its assets and the distribution of the proceeds in a prescribed order of priority. With few exceptions, liquidation is the end of the road for a company and following liquidation it will be removed from the companies register.  Liquidation may occur following a receivership or administration.

Liquidation may be either compulsory, when it is instituted by order of the court, or voluntary, when it is instituted by resolution of the shareholders. Voluntary liquidation is the more common of the two. An insolvent voluntary liquidation is known as a ‘creditors’ voluntary liquidation’ because its conduct is primarily under the control of the creditors.  A solvent voluntary liquidation is known as a ‘members’ voluntary liquidation’, because its conduct is primarily under the control of its members.

Creditors’ voluntary liquidation (or CVL) occurs where the shareholders, usually at the directors’ request, decide to put a company into liquidation because it is insolvent.  A CVL is under the effective control of the creditors, who can appoint a liquidator of their choice.  The CVL is the most common way for directors and shareholders to deal voluntarily with their company’s insolvency.

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