By now, you may have already heard about the CVL which stands for Creditors Voluntary Liquidation. This proceeding is undertaken by any business entity who after thorough examination and perusal of one’s operations and financial affairs has come to conclude that it is insolvent and therefore cannot anymore fulfill its liabilities and obligations as they become due. As a result, it purposefully ceases trading, winds up its affairs and liquidates its assets with proceeds given in first priority to creditors and stakeholders with significant interest in the business.
Apart from the aforementioned definition, there is more to a Creditors Voluntary Liquidation that meets the eye. Here is a list of other fast facts from AABRS.com about CVL that will be of interest to you.
- The term itself speaks of a voluntary act. But before a CVL can be commenced, a meeting with the board of directors must first be held with a majority agreeing to the procedure otherwise other business recovery options may have to be considered. A special resolution must be passed agreed upon by the majority.
- A CVL is only allowed to be taken by insolvent companies who can no longer fulfill their maturing obligations in any other way possible. The proceeds of the liquidation are to be distributed to all creditors and stakeholders with shareholders, owners and directors as the last priority. In the event that the proceeds do not suffice to cover all liabilities, whatever is left will be written off. This makes it a must for entities planning to take on this route to first prove and submit evidence of their insolvency.
- In the event that the company is solvent, the procedure will be shifted to what we call a Members Voluntary Liquidation which is the winding up of a solvent and operational company under reasons they see fit.
- The individual tasked to head the liquidation procedure especially the valuation and sale of corporate assets is the liquidator. Because the company voluntarily winds up its operations, you are given the liberty to choose a liquidator unlike in the case of forced and compulsory liquidations.
- In the course of a Creditors Voluntary Liquidation, operations and trade are called to a halt. However, the liquidator may continue the company’s affairs for a short period of time or as necessary if such is considered essential and valuable for the winding up process.