GENERAL

Which Is the Simplest Liquidation Process – a CVL or an MVL?

Both creditors’ voluntary liquidations (CVLs) and members’ voluntary liquidations (MVLs) are formal processes that are set out in the Insolvency Act of 1986. When companies face going into liquidation, it can be a difficult time, especially for company directors who have never faced financially stressful situations before. For this reason, it is best to turn to professional insolvency practitioners to help simplify the process. Not only will you be able to obtain tailored assistance given your company’s unique set of financial circumstances but you will also be better placed to protect your own personal financial situation while discharging all of your legal obligations to the best of your ability.

That said, what many people want to know is whether a CVL or an MVL is the simpler process to go through when liquidating a company. The fact is that they both have certain complications that need to be taken into account, another good reason to hire professionals in insolvency proceedings. Indeed, it isn’t really possible to say that CVLs are simpler or more convenient than MVLs – or vice versa. This is because they are designed to suit different purposes.

Creditors’ Voluntary Liquidations

To begin with, a Creditors Voluntary Liquidation or CVL is something that company directors can enter into voluntarily if their firm is no longer solvent meaning it can no longer service its debts or generate profits. Some companies may only be temporarily insolvent, of course. According to one leading firm of insolvency practitioners, Salient Insolvency, it is best to explore all of the options available to rescue such businesses before applying for a CVL.

However, if a CVL is decided upon as the best option following a board meeting, it will mean appointing an official liquidator. He or she will then take control of the company and notify all shareholders and creditors of the liquidation. Three-quarters of the shareholders must agree for the CVL to proceed. If so, company assets will be sold to pay off as many creditors as possible. Directors will also be investigated to make sure no fraudulent activities have taken place. After the CVL has been completed, the company will no longer exist in a legal sense having been struck off the Companies House register.

Members’ Voluntary Liquidations

As mentioned, Members Voluntary Liquidations are not necessarily any simpler than CVLs but they come into play when a solvent company is being wound up. Sometimes this is due to the restructuring of a business or because the managing director is retiring but there are many other reasons to seek one. Essentially, an MVL involves making a statutory declaration of its final – solvent – financial position. A shareholders meeting must take place after which an official liquidator can be appointed.

At this point, like a CVL, the company is controlled by the liquidator and assets are assigned to creditors in specie, which means they aren’t sold for their cash value but merely passed on as they are. Creditors are entitled to interest payments on top of any amounts they are owed from when the MVL process began. Note that MVLs are not possible in all circumstances and it will depend on whether a company has deregistered for income tax payments, VAT or corporation tax, among several other factors.

TIME BUSINESS NEWS                                           

TBN Editor

Time Business News Editor Team