FAQ creditors’ voluntary liquidation

What is a creditors’ voluntary liquidation (CVL)?
This occurs where the shareholders, usually at the directors’ request,
decide to put a company into liquidation because it is insolvent.
Either the company cannot pay its debts as they fall due or it has
more liabilities than assets.
The purpose of the liquidation is to appoint a responsible person
who has a duty to collect the company’s assets and distribute them
to its creditors in accordance with the law. That person is the
liquidator, who must be a licensed insolvency practitioner.
When is a company placed into CVL?
The most common circumstances are where the directors recognise
that the company cannot continue to trade and there is no
appropriate rescue procedure available; or, following another
insolvency process (for example an administrative receivership or
administration), there are funds available for distribution to
unsecured creditors.
What involvement do creditors have in
putting a company into CVL?
A meeting of creditors must be held within 14
days of the shareholders’ meeting (it is normally
held on the same day) at a venue convenient for
the majority of creditors. Notice of the creditors’
meeting will be sent to all known creditors at
least 7
days before the meeting, which will also be advertised publicly.
Creditors are entitled to inspect a list of names and addresses of the
company’s creditors prior to the meeting.
One or more of the directors will swear a Statement of Affairs of
the company, which summarises the assets and liabilities (including
details of creditors’ claims) at a date not more than 14 days prior to
the date of liquidation. Copies or a summary of the Statement of
Affairs will be made available to creditors at the meeting. The
insolvency practitioner whom the shareholders nominated as
liquidator will assist the chairman of the meeting, who must be a
director. A report of the company’s history up to liquidation will be
presented, giving an explanation of the reasons for the insolvency,
and creditors will be invited to question the directors.
The creditors then vote to appoint a liquidator. The votes are
based on the values of creditors’ claims. To be entitled to vote,
creditors (other than those present in a personal capacity) must have
lodged a form of proxy by the time and at the place stated in the
notice of the meeting. (You may send your proxy by fax).
Statements of claim may be lodged at any time before voting.
Should the creditors’ choice of liquidator be different from that of
the shareholders, the creditors’ choice prevails. A report of the
meeting of creditors will be sent to all known creditors within 28
days.

What are the powers of a liquidator?
A liquidator’s powers are wide and include
powers to sell the company’s assets, to bring and
defend legal proceedings and to pay dividends to
the company’s creditors. Some of the liquidator’s
powers can only be exercised with the
agreement of the liquidation committee, the
creditors or the court.
Can the unsecured creditors form a liquidation
committee?
Yes. A liquidation committee may be appointed at a creditors’
meeting and must consist of at least three creditors.
The liquidation committee receives reports from the liquidator
and may meet periodically. It assists the liquidator, approves his
remuneration and sanctions the exercise of some of his powers.
Liquidation committee members are not paid, but will receive
their reasonable travelling expenses as a cost of the liquidation.
Does the liquidator pay unsecured
creditors the money owed to them?
Secured and preferential creditors are paid before
unsecured creditors. Secured creditors are those
that have some form of security over a
company’s property (for instance a bank with a
fixed and floating charge debenture). Secured
creditors are entitled to be repaid their debt out
of the proceeds of sale of the secured assets in
priority to ordinary unsecured creditors.
Preferential creditors are a special category of
unsecured creditor. They consist mainly of certain
debts due to employees and the Redundancy
Payments Service and are paid in priority to all
other unsecured creditors.
The liquidator will pay a dividend to unsecured
creditors if enough funds have been realised
from the company’s assets after paying costs,
secured creditors and preferential creditors.
If you believe that you own something in the company’s
possession, you should contact the liquidator as soon as possible
with full proof of ownership and be prepared to identify what you
are claiming. The liquidator will examine your claim carefully before
deciding whether to release the goods in question, pay you for
them, or otherwise.
When all the claims have been adjudicated or provided for, the
liquidator will declare a dividend. The dividend will be a percentage
(pence in the pound) of each creditor’s total admitted claim, based
on the cash available for distribution to the creditors and the total of all creditors’ claims. All unsecured creditors are treated equally.
Six months after writing off a debt in your accounts, you can
claim VAT Bad Debt Relief from HM Customs and Excise for the VAT
you have paid.
How do I make a claim in the liquidation?
The liquidator will write to all known creditors asking them to
submit claims. You must submit your claim to the liquidator in
writing, providing sufficient supporting evidence of your claim, e.g.
copy statements, invoices, correspondence etc. to allow the
liquidator to decide whether or not your claim is valid. Any costs
incurred in submitting your claim will not be reimbursed. Your claim
does not need to be on a specific form.
You may claim interest on your outstanding debt up to the date
of liquidation if it bore interest, if it was payable at a previous date
under a written instrument, or if you had previously demanded it in
writing with notice that you would claim interest. You will not get
interest on your claim accruing after liquidation, unless all creditors
are paid in full.
How will the liquidator adjudicate my claim?
The liquidator will compare your claim to the company’s records and
any other available information, and he may discuss the claim with
the directors. The liquidator may ask you for additional information
or evidence if he thinks you have not sufficiently proved your claim.
For example, if you have supplied goods to the company, the
liquidator may ask you to provide copies of signed delivery notes.
The liquidator may agree your claim in full or in part, or he may
reject your claim if he does not think it is valid.
What can I do if I believe the liquidator has unfairly
rejected my claim?
It is best to contact the liquidator in the first instance to discuss any
amounts under dispute. If you cannot reach agreement you can,
within 21 days of rejection, appeal to court. After 21 days, if you do
not apply to court, the adjudication is final.
Does the appointment of a liquidator prevent a creditor
taking legal action against the company?
No. Creditors may still pursue actions against the company,
although this might lead only to more unsecured claims in the
liquidation as creditors are not entitled to enforce recovery. The
liquidator may apply to court to stay any proceedings.
It is only in certain specific instances (for example if the company
has insurance cover in place that may be used to pay your claim or
you claim ownership of specific assets) that it may be appropriate to
commence legal action against the company. You should always
take legal advice before commencing any action against a company
in liquidation.

Is the liquidator bound by contracts entered into by the
company prior to his appointment?
No. The liquidator may refuse to perform or formally disclaim any
onerous or unprofitable contract entered into by the company prior
to liquidation. The other party will then have a claim for breach of
contract which will rank as an unsecured claim. However, a
contracting party that has acquired a beneficial interest in property
of the company will still be able to enforce it.
Is the liquidator liable for sums due under contracts
entered into by the company subsequent to his
appointment?
The liquidator can cause the company to enter into new contracts,
in which event the associated liabilities of the company rank as an
expense of the liquidation.
As an unsecured creditor, what information am I entitled
to?
Within three months after the end of the first year and of each
succeeding year and on conclusion of the liquidation, the liquidator
must summon a meeting of creditors. As well as sending a notice of
the meeting to creditors, it is usual for a liquidator to send a
receipts and payments account for the period and a report setting
out his conduct of the liquidation, which contains all the
information that will be available at the meeting.
How is the liquidator’s fee determined?
The liquidation committee (if there is one) or the creditors agree the
liquidator’s fee, failing which it will be determined in accordance
with a statutory scale or fixed by the court. Although the fee can be
fixed as a percentage of the assets realised or distributed (or both),
it is normally based on the following factors:
the time properly spent by the liquidator and his staff;
the complexity of the case;
any exceptional responsibility borne by the liquidator;
the effectiveness with which the liquidator carries out his duties;
and
the value and nature of the company’s assets.
R3 has produced a separate guide explaining insolvency office
holders’ remuneration, which is available from the person who gave
you this guide.
When is the liquidation complete?
The liquidation is complete when all the assets have been realised,
all creditors’ claims have been adjudicated (where there are
sufficient funds) and net realisations after expenses of the
liquidation have been distributed to the creditors.
To conclude the liquidation, the liquidator will call final meetings
of creditors and shareholders and present his final receipts and
payments account, together with a report showing how the
liquidation has been conducted.
What should I do if I am dissatisfied with the liquidator’s
handling of the case?
You should first contact the liquidator to try to resolve the problem.
If you are still not satisfied, you may be able to make an application
to the court.
If you believe that the liquidator is guilty of professional
misconduct, you should contact his regulatory body.

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