Creditors’ Voluntary Liquidation (“CVL”)
A creditors’ voluntary liquidation (CVL) is initiated by the directors of the insolvent company. Instead of continuing with the business when the directors foresee that there has been no hope in reviving the company, in order to minimise loss, directors of company may initiate a creditors’ voluntary winding-up. This might be an ideal situation for an insolvent company that has no possible future. It is important for the directors to take advice at an early stage, instead of falling into insolvent trading risk.
Causes of Creditors’ Voluntary Liquidation
A creditors’ voluntary liquidation happens, when the company itself declare that it has been insolvent (i.e. unable to meet its liabilities as it fall due) and decided to wind-up the company voluntarily instead of continuing operations and incurs further losses.
Process of Creditors’ Voluntary Liquidation
The directors and shareholders will hold a meeting to confirm that the company is insolvent and proceed with the decision to place the company into a creditors’ voluntary liquidation. Once agreed, a creditors’ meeting will then be held. A licensed insolvency practitioner will then be appointed to administer the liquidation administration of the company.
Outcomes of Creditors’ Voluntary Liquidation (“CVL”)
All assets of the insolvent company will be vested and managed by an insolvency practitioner or more commonly known as a liquidator. The assets will then be disposed of by the liquidator and surplus amount will then be distributed to the creditors according to ranking of priorities in the Act. At completion of the liquidation administration, the company will be deemed dissolved upon lodgement of relevant documents with the authorities.
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