Back to Basics: What is a Creditors Voluntary Liquidation?

Brett Goldman, Assistant Manager

A creditors voluntary liquidation or CVL, as commonly referred, is the process whereby the assets of a corporation are realised in an orderly manner and the proceeds distributed amongst creditors of the company in satisfaction of their claims against the company. Any surplus funds are subsequently returned to its members.

A creditors voluntary liquidation requires that the company is insolvent but despite its title, cannot be initiated by creditors. A creditors voluntary liquidation is initiated when the members of the company resolve, by special resolution, that the company be wound up following the director(s) determining that the company is insolvent and should be wound up.

The powers, duties and responsibilities of a liquidator in a CVL are contained in the Corporations Act 2001.

The liquidator realises all of the company’s assets, investigates the affairs of the company, pursues available recoveries and, where necessary, reports to the Australian Securities and Investments Commission. Distributions are paid to creditors in the priority specified by the Corporations Act 2001 and surplus funds, if any, are returned to members.

The company will be deregistered approximately three (3) months following the completion of the liquidation.

A creditors’ voluntary liquidation is a fast and effective way for director(s) to mitigate any further losses being incurred by themselves and creditors.