I P Services Limited Licensed Insolvency Practitioner

9 Woodhill Road Portishead, Bristol BS20 7EU
Telephone 01275 843555 and Fax 01275 843355

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Creditors Voluntary Liquidation

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Since the introduction of the Insolvency Act 1986, the CVL has been the most widely used procedure for the liquidation of an insolvent company. It provides directors with an opportunity to explain their actions by preparing a written report to creditors, and enables shareholders to nominate a Liquidator of their own choice, subject to the creditors' ability to have that Liquidator replaced by their own nominee. Where necessary, appointment of a Liquidator can be done quite quickly in order to preserve assets.

The Liquidator's appointment is finalized at a meeting of creditors, normally held after a meeting of shareholders. The creditors can appoint a Liquidation Committee to assist and advise the Liquidator. A specific resolution regarding how the Liquidator should be remunerated is proposed.

The Liquidator's role is primarily to realize the assets of the company and to distribute them to creditors in statutory order of priority. The Liquidator also has a duty to investigate the affairs of the company and to report to the Department of Trade and Industry under the Company Directors Disqualification Act 1986 as regards specified types of misconduct by the directors. In appropriate cases, the DTI may then issue proceedings to have directors disqualified. The Liquidator also has significant powers to issue proceedings against directors for compensation for losses caused by fraudulent or wrongful trading, or by preference, and also generally for recovery of assets.

The CVL can sometimes be perfectly legally used in conjunction with a partial rescue. Where circumstances permit, the business and assets can be preserved until after the creditors meeting by means of a Caretaker Agreement with a prospective purchaser, and sold by the liquidator at arms length to that or another purchaser. By this means employment and asset value can be safeguarded, and dividends to creditors maximized. The strict policy of IP Services is to sell assets for open market valuation, as determined by independent professional valuers, and to seek the agreement of relevant classes of creditors. Specific additional safeguards apply to purchases by directors or associated parties.

This information is written in general terms and cannot be fully comprehensive. Its application to particular circumstances will depend on specific facts. The views and suggestions set out are not intended to constitute professional advice or to be a substitute for specific advice.

Peter O'Duffy F.C.C.A., R3, Licensed by ACCA, 1 Woodside Place Glasgow G3 7QF