A Creditor’s voluntary winding up (CVL), unlike a Members voluntary liquidation (MVL), occurs when a voluntary liquidator is appointed to an insolvent company. Although a CVL is described as a ‘creditors’ winding up, the creditors of a company are in fact unable to commence a CVL.
If a director(s) forms the opinion that their company is insolvent (i.e unable to pay debts as they become due and payable, see section 95A of the Corporations Act) and no declaration of solvency can be made, they can convene a meeting of members and resolve to pass a special resolution (75% of members after quorum is needed) to wind the company up.
At the members meeting the company will appoint a voluntary liquidator. The appointed creditors’ voluntary liquidator in these circumstances, as referenced above, must comply with section 532 (1) and (2) and be a registered liquidator and independent from the company.
Although the appointment of a creditors’ voluntary liquidator through the determination of insolvency by a director is the most common type of CVL, there are other ways that the liquidator can be appointed. These include:
- The members’ voluntary liquidator appointed under a MVL determines that the company is actually insolvent and the appointment of a creditors’ voluntary liquidator is required;
- Transition from voluntary administration to a CVL; and
- ASIC appointment.