Creditors Voluntary Liquidation  (CVL)

Introduction

A CVA is a deal between the company and creditors to repay from future profits.

When is it appropriate?

• The company is insolvent
• It does not appear to be viable - even if restructured
• The directors don't believe that they have the determination needed to rescue the company
• It is used as part of a restructuring of a group

Process

• The directors of an insolvent company MUST call an extraordinary general meeting of the company.
• At this members (shareholders) meeting, the directors will report that the company is insolvent.
• At this meeting the members pass a resolution to cease trading, and nominate a liquidator.
• The liquidator conducts a relatively quick investigation into the statement of affairs of the company.
• The Liquidator calls the creditors to a meeting to present his findings and proposals.

The Liquidator's role:

• To convert the assets of the business into cash.
• To adjudicate the claims of the creditors.
• To investigate and report upon the conduct of the officers of the company. 
• To make payments to creditors in order of priority.

Phoenix

Provided rules are observed and the liquidator maximises the interests of creditors then the business assets can be sold to a "connected party". In this event the liquidator must satisfy himself that he/she has:

• Obtained the best possible value for the assets having typically
• Advertised the assets for sale. (Note 1)
• Ensured the creditors interests are not compromised 
• The trading name of the new company is not the same or similar to the liquidated company.

Advantages

From a directors perspective:

• Directors can avoid the risk of wrongful trading

From a creditor's perspective:

• The directors conduct WILL BE investigated by a liquidator

Disadvantages

From a directors perspective:

• Any tax losses built up in the period prior to the liquidation are lost
• Goodwill is lost
• Director's conduct will be investigated
• It is a costly
• In virtually all cases there is no return for the shareholders

From a creditors perspective:

• Assets are sold for much less than book value.
• Claims can be much higher (eg. claims from employees, landlords and secured creditors)
• There is often no prospect of continued trade.
• The return to creditors in liquidation is usually low.