Directors Voluntary Liquidation

Thinking of a Directors Voluntary Liquidation? What Are The Options?

A directors voluntary liquidation is a matter which needs expert help

A directors’ voluntary liquidation is more commonly known as a creditors voluntary liquidation, or CVL. It is a process that a director takes to close down a company which is insolvent. It is by far the most favoured route for an insolvent company to take.

In a directors’ voluntary liquidation the directors of the company report to shareholders that the company cannot continue to trade due to insolvency. This will be that its liabilities are greater than its assets, or that the company cannot pay its debts as and when they fall due. A clear indication of this will be if PAYE and tax cannot be paid on due dates.

A director will also be aware if the company bank account is continually at its maximum, or cheques are being returned, that steps need to be taken to eradicate losses.

Once the director has reported to his shareholders (and in many small companies the shareholder and directors will be one and the same) they can ask an Insolvency Practitioner to prepare a statement of affairs which sets out the financial position of the company and explains why it is the case that the company cannot trade on and needs to be closed down.

It will give an indication of the return, if any, that creditors can expect to see. Very few liquidations offer a return of any sort, due to the paucity of assets, compared to the high costs sometimes incurred in formally liquidating the company.

The meeting takes place at least two weeks after notice of the directors voluntary liquidation has been given. Directors are expected to be in attendance, as this will be the chance that the creditors have to quiz the directors as to why the company had failed. Ultimately though, the company will be closed and the directors can move on to other projects, leaving the liquidator to complete the compliance issues and file the necessary paperwork to strike the company off.

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