Creditors Voluntary Liquidation
Creditors Voluntary Liquidation or CVL is the most common way to wind up an insolvent company when its business has ceased trading, or is no longer viable to trade. The liquidator’s appointment can be made very quickly, the process is straight forward and gives the best outcome for the company, its creditors and the directors in the circumstances.
Your company is insolvent if it is unable to pay its debts when they fall due. In this case the company will owe debts to creditors such as the Australian Taxation Office (ATO), suppliers, landlord and for employee superannuation.
Although the name Creditors Voluntary Liquidation sounds like an action taken by creditors, the process is actually initiated by shareholders. Shareholders appoint a liquidator by agreeing to do so and passing a resolution confirming this.
As a company director, there are a number of reasons why you don’t want to run the risk of trading while insolvent. By opting for a CVL, you can stop the company losses and meet your director’s responsibilities.
Why Appoint a Liquidator to Your Company?
Although we understand it is a very difficult decision to put your company into liquidation, choosing to finalise your business’ affairs through CVL may be the best option if your company:
- Is experiencing cash flow issues and doesn’t have enough money to pay creditors,
- Has ceased trading, or is trading at a loss and cannot keep funding the losses,
- Has outstanding ATO tax lodgements and debts, and the ATO has commenced action to recover its debts,
- Owes superannuation to employees for a number of quarters,
- Has experienced a serious disruption such as a bad debt, loss of a major customer or employee, or is suffering from a director’s personal circumstances such as illness or divorce, or
- Is causing you stress and you are uncertain how to improve its cash flow and profitability.
Any of these may mean your company is insolvent and you therefore need to take urgent action to deal with its financial position.
Benefits of a Creditors Voluntary Liquidation
Choosing a CVL allows creditors to have an independent professional appointed to help recover as much money as possible. It also gives directors the ability to move on from their hardships with the best outcome in the circumstances.
Particular benefits include:
- Directors can reduce the risk of becoming personally liable for the company’s debts under insolvent trading and other claims,
- Directors may avoid breaching their director’s duties and being subject to the Australian Securities and Investments Commission (ASIC) prosecution for any offences,
- An independent liquidator will conduct an orderly winding up of your company in a legal and fair manner,
- Creditors have someone responsible for providing information and dealing with their queries, investigating and reporting to them on the company’s affairs and recovering money to pay their debts,
- Acting early prevents further losses to creditors and directors, and
- Avoids your company being placed into liquidation by the ATO or another creditor.
Our experts can talk you through your situation and provide detailed advice.
Get in touch for a free consultation today.
Steps to Follow if Going into a Creditors Voluntary Liquidation
Once you’ve reviewed your options and decided that a CVL is the right option for your company, the process is straightforward and we will provide everything you need to get started. The steps involved include:
Speak to a liquidator, your lawyer or accountant about the company’s financial position, its options to deal with its financial difficulties and other relevant factors.
Deciding as the sole shareholder, or discussing and agreeing with other shareholders that your company is insolvent and that a CVL is the best option for the company in its circumstances.
Confirming instructions to the intended liquidator to prepare the necessary documents for their appointment. The liquidator will provide a package enclosing information about the liquidation process, their estimated fees, the shareholder’s resolutions and forms for the directors to complete about the company’s assets, liabilities and affairs so the liquidator can do their job.
The liquidator will then proceed to file the necessary ASIC documents, advise creditors of their appointment and take control of the company’s affairs. A liquidator of a CVL is required to issue an initial report to creditors within 10 business days and a further report detailing their investigations within three months of their appointment. The liquidation process may last three months, or perhaps longer than a year if legal action is required to recover debts or legal claims.
The Liquidator’s Role
The Liquidator who you appoint is required to act in the interests of your company and its creditors and has duties to:
- Identify, collect and sell the assets of the company,
- Advise creditors and other parties or the liquidator’s appointment and respond to their queries,
- Investigate the company’s affairs to identify – and if commercially viable – pursue claims against the directors and various parties in respect of insolvent trading, uncommercial transactions, unfair preference claims and other claims available to the liquidator,
- Report to creditors on the liquidator’s findings and distribute a dividend to creditors if there are sufficient funds recovered to do so,
- Complete various statutory reports and lodgements with ASIC regarding the directors’ conduct and other matters, and
- Once all matters have been finalised, request ASIC to deregister the company.