Creditors’ Voluntary Liquidation: can a company really go into liquidation within a few days?

Our latest podcast was hosted for CICM (Chartered Institute of Credit Management), with Giuseppe Parla, Bethan Evans and Alexandra Davies, discussing deemed consent.

When a business is insolvent and its Directors decide to initiate a Creditors’ Voluntary Liquidation (CVL), they must first engage an insolvency practitioner and follow defined procedures. Credit managers are likely to be familiar with a scenario, where a business owing them money is close to insolvency and the Directors want to wind up the company. In this case, an insolvency practitioner is appointed to oversee the liquidation process and creditors are notified of the proposed CVL. It’s important to note that creditors have a limited amount of time to act, so it’s crucial to stay informed and act quickly.

The Insolvency Act 1986 was modified in 2016, one of the updates included the Decision Procedure, which is now applicable in all insolvency cases. The objective was to simplify and accelerate the liquidation process by replacing unnecessary face-to-face meetings with virtual meetings as a viable alternative. Creditors are invited to attend the virtual meeting and at least three business days’ notice is required. This meeting must be advertised in the London Gazette. The appointment of the members’ nominated insolvency practitioner is then approved by a majority of creditors present at the meeting, either in person or by proxy. Another way to enter into a CVL is through the Deemed Consent procedure. Creditors receive the same notice period in this scenario, but if no objections are received within the specified time, the CVL will proceed with the nominated insolvency practitioner. There is no need to advertise. However, the Deemed Consent can still be challenged if a sufficient number of creditors agree.

Although creditors have the option to object and request a meeting, there are advantages and disadvantages to doing so. For instance, if a creditor received a notice for a significant amount of late penalties several months prior, they may wish to gain a better understanding of the events that led to the company’s liquidation decision by the directors. Directors may be asked whether the decision could have been taken sooner. To effectively challenge the Deemed Consent, it would be advisable to request a meeting. Nevertheless, it is important to note that this may only prolong the process, as the company will still ultimately be placed into a CVL.

10% objection

If Deemed Consent is being sought and questions need answering, creditors must quickly request a meeting – i.e., within three business days of receiving notice of the Deemed Consent. To initiate this process, 10% of creditors must support the objection.

It is recommended to review the Statement of Affairs to determine the probability of a return to creditors and to submit a Proof of Debt, even if a meeting with creditors is not required. There may be instances where credit managers have limited options but to acknowledge that the outstanding invoices may need to be considered as losses. However, intervening may be necessary and it is important to avoid being timed out. Therefore, to guarantee timely delivery of notices to decision makers, it will be necessary to establish strong postal procedures to ensure it arrives with the company’s decision maker in good time.

To summarise, if you receive either a Decision Procedure or a Deemed Consent CVL notice, the insolvency practitioner will most likely use the postal system to contact the company’s creditors. Therefore, it is crucial to act quickly, as time is of the essence.

Giuseppe Parla is a Director and Licensed Insolvency Practitioner at Menzies LLP. 

For more information on the areas covered within this article, please contact the business recovery team at Menzies or contact us below:

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