The Creditors Voluntary Liquidation or CVL is one of three main types of liquidation procedures available and one of the two voluntary procedures taken by directors and owners on their own accord. Let’s get to know more about it today.
Defined, a CVL is a procedure in which the corporate directors choose to voluntarily bring the business to an end by appointing a licensed insolvency practitioner as a liquidator to liquidate or sell off all of its assets, distribute proceeds to rightful parties and all other related task necessary to the procedure.
Do understand and remember that the procedure can only be taken by an insolvent company or on whose assets and cash inflows can no longer suffice for its bigger ratio liabilities and outflow counterparts. This makes it important for businesses to carefully examine their finances and their state of affairs first before concluding to take on a CVL.
It takes a whole lot of examination and assessment to do that but there are two ways to help you detect where one stands early on. They are as follows.
The first is referred to as the “balance sheet test” and looks at two integral parts of your statement of financial position, the assets and liabilities. A ratio that equates to a heavier liability than assets is considered to be dangerous as it can lead one to insolvency.
The second is called the “cash flow test” and looks at one’s statement of cash flows, comparing the inflows to the outflows where should the latter outweigh the former will reveal an insolvency case.
Because a CVL is voluntary in nature, the business and its board of directors must come to a major vote regarding it. Plus, they have to release a statutory declaration along with proofs to their claims. If proven that the business is indeed insolvent, a Creditors Voluntary Liquidation will roll on.
One of the important parts of the procedure includes having to meet with one’s creditors to discuss the plans and steps to be taken. One should never keep such matters a secret to them. They are after all, majorly affected by this action. Because a Creditors Voluntary Liquidation is intentionally taken by the entity, it has the power to appoint a liquidator to oversee all of the procedures taken. The said liquidator shall take care of valuating assets, selling them off an distributing proceeds with the first level of priority given to creditors.