A CVL is a formal procedure for insolvent limited companies that are winding up the business due to debt. Because it’s voluntary, the directors of the company have chosen to close the business, usually after all other attempts to save the business have failed. To decide whether a company is considered insolvent, there are two predominant tests to carry out – the cash flow test and the balance sheet test. The cash flow test is when the company is not able to meet its liabilities when they fall due. The balance sheet test shows that the company’s liabilities are greater than its assets.
When a business is suffering from debts they cannot honour and creditors are demanding payment, the directors of the business are often in the position of having to consider liquidating the company.
In some cases, creditors will have petitioned the court and forced the company into compulsory liquidation.
However, if it hasn’t got that far, there is the option of a Creditors Voluntary Liquidation, or CVL.A CVL is a formal insolvency process; the directors voluntarily choose to cease trading and wind up the insolvent company.
Whilst no company director wants to be in this position, it is often the best course of action for all parties.
So, how does a Creditors Voluntary Liquidation work and in what way does it affect the business?
One thing to note at this point in terms of qualifying for Business Asset Debt Relief from HMRC – share stockholders must have owned the shares for a minimum of one year and have been an employee or director.If your business is struggling with debts and not sure what your next step should be, are facing a compulsory liquidation or have to consider winding up an insolvent company voluntarily, the first step is to seek professional advice.
Our highly experienced professionals at Leading UK are on hand to help and advise on the process.
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