The Effect Of Voluntary Liquidation On Creditors

Creditors have more involvement in a Creditors Voluntary Liquidation (CVL) than they do in a Members Voluntary Liquidation (MVL)

. The liquidation process can have some disadvantages for creditors, such as the fact that in some cases a creditor may not be able to take action against a company without the permission of a court once a company is in liquidation.

A Creditors Voluntary liquidation may be beneficial to creditors due to the fact that regular meetings will be held, in which creditors can, along with an appointed liquidator, ask questions regarding the companys affairs. Creditors can also disagree with the choice of liquidator and can opt to choose an alternative liquidator if they wish.

With the right liquidator, creditors will receive the amounts that they are owed, allowing the company to be brought to an end. The liquidation process will not be complete until the companys assets have been valued and sold and the creditors have been paid. Creditors can petition to the court in order to force the company to be liquidated compulsorily, but this is a costly procedure and some creditors may wish to opt for alternatives.

Some creditors may agree to receive payments through procedures other than liquidation. Some companies may be able to make an informal arrangement with creditors, allowing the creditors to be paid off and the company to continue operating. However, informal arrangements can prove to be a disadvantage to some companies due to the fact that some creditors may not accept reduced payments and can pull out of the arrangement at any time. In this case, the best option would be for the company directors to try and set up a formal arrangement so that they are able to continue paying off creditors at the agreed amount.

by: Ashlyn Henry

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