Creditors' Voluntary Liquidation (CVL)
Creditors’ Voluntary Liquidation (CVL) is a structured and voluntary process that insolvent companies undertake to wind down their operations systematically. This procedure becomes necessary when a company acknowledges its inability to meet financial obligations, leading the directors and shareholders to take proactive steps to liquidate the company’s assets and distribute the proceeds among creditors in an organized and controlled manner.
Here’s an in-depth breakdown:
The initial step involves a comprehensive assessment of the company’s financial health. Insolvency is established when the company’s liabilities surpass its assets, and it becomes incapable of meeting its debts in a timely manner.
Once insolvency is ascertained, the company’s directors convene a board meeting to discuss the financial situation. During this meeting, it is crucial to consult with insolvency practitioners or legal professionals. Subsequently, a decision is made to initiate the CVL process, which must be in the best interests of creditors.
Following the decision, a shareholders’ meeting is summoned to pass a resolution for the appointment of a licensed insolvency practitioner as the liquidator. This professional take control of the company’s affairs and oversees the entire liquidation process.
Shortly after the shareholders’ meeting, a creditors’ meeting is convened. At this gathering, creditors are provided with comprehensive information about the company’s financial standing. They have the option to appoint a committee to supervise the liquidator’s actions, ensuring transparency and fairness.
A pivotal responsibility of the liquidator is the identification, realization, and sale of the company’s assets. The proceeds from these asset sales are used to satisfy the company’s debts, following a specified order of priority that typically begins with secured creditors, moves to unsecured creditors, and concludes with shareholders.
Throughout the CVL process, the liquidator is obligated to maintain regular communication with creditors and provide detailed reports. This practice ensures transparency and accountability in all liquidation proceedings.
Upon clearing all debts and associated expenses, any remaining funds are distributed among the company’s creditors based on their claims and assigned priority. Creditors typically receive a percentage of their outstanding debts.
Following the distribution of assets and the submission of requisite reports to the Accounting and Corporate Regulatory Authority (ACRA), the company is dissolved, effectively concluding its legal existence.
In certain cases, the liquidator may initiate an investigation into the company’s affairs to identify any improper transactions or actions that may necessitate legal action to recover assets for the benefit of creditors.
Strict adherence to legal requirements is paramount throughout the CVL process. The liquidator must ensure that all statutory obligations are fulfilled, including the notification of relevant authorities and creditors.
Claims from employees, including unpaid salaries, benefits, and statutory entitlements, are given priority and must be settled before other unsecured creditor claims.
In summary, Creditors’ Voluntary Liquidation (CVL) serves as a responsible and organized approach for insolvent companies to address their financial difficulties. It prioritizes the protection of creditors’ rights and ensures that the liquidation process is conducted in a transparent and orderly fashion. When considering CVL, it is imperative for company directors and shareholders to seek professional advice from qualified insolvency practitioners or legal experts.
To understand more about Creditors’ Voluntary Liquidation, look at our Frequently Asked Questions (FAQs) or Contact Us for help in Singapore voluntary liquidation