Going into business is an investment. You put your hard earned money out for hopes that it will grow with the help of profits. But just like any other investment, opening a business regardless of size involves a lot of risk. One of the biggest risks out there for any entrepreneur would have to be a Creditors Voluntary Liquidation or a CVL.
Of course no entrepreneur would want to close shop unless worse comes to worse. However, certain situations may call for it, insolvency being the major factor here. When the entity can no longer fulfill their obligations as they mature within at least a twelve month period and when disbursements outweigh cash inflows, the company could be suffering from a financial distress and unlike other dilemmas this can be pretty bad.
Remember that it is considered illegal for entities to continue trading should they already be fully aware or at least clued in about the situation. Directors have the responsibility of managing the affairs of the business. This includes seeing to it that creditor interests are fulfilled before anything else. In other words, they should be paid first before profits are distributed to owners. Creditors include not only the financial providers and vendors of the entity but also its own employees. Should directors be proven to have committed a breach of such responsibility, they may be held personally liable and thus may have to pay creditors not only with their shares in the business but also with their own separate and personal assets.
A Creditors Voluntary Liquidation or CVL is a process that allows an insolvent company to wind up its affairs and close on their own accord. Such decision is initiated by the board of directors and made to roll through a board resolution. Here, the company will often hire a qualified liquidation and insolvency practitioner to handle the case. An appraiser may also be called in to determine the value of the assets to be liquidated. Meetings with the shareholders and creditors will also take place as well as an appointment of a liquidator. A CVL may not be in your plans when you put up shop but should it happen, one has to learn how to bow down gracefully or else suffer the wrath of a winding up petition in court.
When certain risks have become too high and insolvency has been proven after thorough examination and deliberation, a Creditors Voluntary Liquidation should be considered if not, other business recovery options should be looked into.