Company insolvency- comparing CVL and compulsory liquidation
Due to the economic downturn, many companies face company insolvency. Despite the availability of various commercial recovery methods, many companies end up being wound up. Liquidation for insolvent companies falls into two categories: Creditors Voluntary Liquidation and compulsory liquidation. Being company directors, it is good to understand the implications of each method if your company is facing insolvency. CVL is initiated by the directors after establishing that the company is insolvent. They hire an insolvency practitioner to arrange a meeting with the creditors so that the company can be wound up. In the case of compulsory liquidation, creditors initiate the process by filing a winding up petition in court. This leads to the freezing of the company’s accounts to be frozen making it hard for the business to continue trading. Opting for CVL is better since it allows the company directors time to make plans and involve insolvency professionals. Compulsory liquidation on the other hand catches the directors off guard with no time to consult professionals.
