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Creditors Voluntary Liquidation

What is Creditors Voluntary Liquidation?

This is the most common route for dealing with an insolvent company. In a creditor’s voluntary liquidation, the directors/shareholders decide to put the company into liquidation due to the fact it is insolvent. In doing this a licensed Insolvency Practitioner is appointed as the Liquidator of the company whose prime duty is to collect in the assets of the company and distribute them to the company’s creditors.

When is Creditors Voluntary Liquidation Appropriate?

With creditors voluntary liquidation the company will cease to trade, the assets are realised and employees dismissed. Where it may be possible to trade out of the situation, other insolvency procedures such as administration or company voluntary arrangement may be more appropriate. It is for this reason that directors should seek advice from a licensed Insolvency Practitioner who can guide them through the options. Creditors voluntary liquidation will be appropriate where:-

• The company is insolvent (can’t pay its debts as and when they fall due);
  
• The company’s business is no longer viable;
  
• The directors are not prepared to continue to trade the company;

What is “Phoenixing”?

This is the practice whereby the directors buy back the assets of an insolvent company from its liquidator. This is a common practice where for instance, the directors have the option of putting limited resources into an already insolvent company. In doing this they may merely reduce the deficiency to the company’s creditors. Alternatively they could use the same funds to set up a new company and acquire the assets of the old company. The new company is solvent from day one. This is known as Pheonixing. There are strict procedures to be followed on valuation and disclosure of such a deal to the creditors. The liquidator will ensure that the best price is obtained for the assets.

The Process of Creditors Voluntary Liquidation

A board meeting needs to be held to instruct licensed Insolvency Practitioner to advise the directors and to assist in convening meetings of the company’s members and its creditors. The meeting of members and creditors are usually held on the same day at a venue convenient for the majority of creditors. Those meetings will be held on a business day between the hours of 10.00 a.m. and 4 p.m. Notice of the meetings is advertised in the London Gazette and two local newspapers circulating in the area the company traded from.

The directors need to assist the appointed Insolvency Practitioner to prepare a detailed trading history of the company, together with providing financial information as to its affairs. This report will be presented as a director’s report to the meeting of creditors.

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