The Creditors Voluntary Liquidation is a process initiated by the board of directors of an insolvent company after having reasonable grounds that the entity can no longer recover from its poor financial state. It involves the appointment of a liquidation and insolvency practitioner who will take care of asset valuation ensuring that they are valued for what they are actually worth if not more. A sale follows suit and distribution thereafter.
A CVL may not really come off as good news considering that it is done to close the company. After all, entrepreneurs want to grow not shut down. However, taking the Creditors Voluntary Liquidation route brings about advantages to entrepreneurs in more ways than one. Find out what they are as you read on below.
- Retention of Control
Unlike forced and compulsory liquidations, a CVL allows directors to retain a significant control or influence in the way the entity is shut down so as to minimize any further losses, improve asset recoveries and hopefully uphold everyone’s interests. This is true even with the presence of an insolvency practitioner.
- Avoidance of Wrongful Trading Consequences
Wrongful trading occurs when directors continue with sales and operations even under knowledge of the company’s insolvency. This dampens operations and worsens the entity’s financial position. Expenses are piling up. Unpaid debts remain. Creditors are not being paid. This can be seen as fraud in some ways and is therefore illegal.
- Protection from Personal Liabilities
When wrongful trading is proven, directors can be held personally liable. This means that creditors can claim not only from the corporate assets but also up to the personal assets of directors at fault.
- Prevention of Court Intervention
Your company can not simply escape their dues and liabilities. One way or another and somewhere down the line, creditors will take action. The most fatal of them all would have to be a Winding Up Procedure at Court which will put you into a compulsory liquidation. This forces you to wind up and rips out all control you have over the assets of the company. It also tarnishes image and branding for the company as well as its directors and owners.
- Legally and Formally Closes Business
The Creditors Voluntary Liquidation is a formal and legal means to cease operations and stop trading. It puts the company to a close, eliminating any unpaid debt and allowing all stakeholders to move on to better endeavors.
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