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RELATED INSIGHTS

A Creditors’ Voluntary Liquidation (CVL) is the process of winding-up a company by the election of its creditors, as opposed to a court-ordered liquidation. This type of liquidation includes the assessment and distribution of company assets as well as an investigation into the causes of the company’s insolvency.

Creditors are businesses or individuals who are owed money by the company. They may be classified as:

Unsecured Creditors

Creditors that hold a security interest in the company’s assets as collateral against a debt. For example; a bank requires estate as security for a loan.

Unsecured Creditors

Creditors who have provided goods or services without requiring security. 

Employees

Employees are unsecured creditors, however they fall under a special category. During company liquidations, outstanding employee entitlements are given payment priority over the claims of other unsecured creditors.

What Causes A CVL?

There are a range of reasons why creditors may vote for a CVL and it can occur at any stage of a business’s life. Most commonly, voluntary liquidation is initiated when directors suspect their company is, or is likely to become, insolvent. This allows them to smoothly wind-up the company without infringing on wrongful trading laws, as trading whilst insolvent can result in personal liability.

Creditors may also elect for a voluntary liquidation at the end of a voluntary administration if they determine the company is not salvageable. Similarly, if a Deed of Company Arrangement (DOCA) cannot be met or has been terminated, creditors may vote for voluntary liquidation.

Debt recovery action and ATO pressure is another common cause for CVL. When faced with wind-up petitions or the threat of Director Penalty Notices (DPN), a CVL is an effective strategy to avoid more serious legal action.

Alternatively, a CVL can also be entered into when a solvent company simply wishes to cease trading. One of the most notable benefits of a voluntary liquidation is that the company retains more control than a court-ordered liquidation and is able to select their own licensed insolvency practitioner or liquidator. 

Once selected, the liquidator:

  • Has an obligation to secure the best outcome for all company creditors
  • Must safeguard, assess and distribute company assets
  • Determines the causes of the company’s failure
  • Investigates the company’s affairs and make reports to creditors where appropriate

If the company is suspected of insolvent trading or any misconduct, a report will be lodged with the Australian Securities and Investments Commission (ASIC). From there, further investigations and reporting will be required.

How is a CVL finalised?

Once the company assets have been assessed and distributed among creditors and all investigations are completed, the company can be formally closed. To do this, the registered liquidator applies to ASIC and the company is deregistered.

We Can Help

The professional and compassionate team at Wisdom Business Consultants are experienced and highly qualified to assist businesses through the voluntary liquidation process. We will ensure the process is conducted correctly and work to secure the best results possible for both company directors and creditors alike.

To learn more, go to https://wisdombusinessconsultants.com.au/ or contact us today:

Wisdom Business Consultants

📞 1300 277 148

✉️ help@wisdombc.com.au 

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