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Creditors Voluntary Liquidation CVL Processes and Procedures

5 March 2018

Creditors Voluntary Liquidation CVL Processes and Procedures

If a company is insolvent and is no longer viable then it should cease trading and consider a creditors voluntary liquidation.  This is to avoid the position of the creditors getting worse which could lead to personal liability for the directors.

Insolvent companies go into liquidation, administration, receivership, they trade-out, refinance or they enter a company voluntary arrangement.

Why not download our complete experts guide to liquidation.

When is creditors voluntary liquidation appropriate, and what is the process?

Creditors voluntary liquidation is appropriate when:

  • The company is insolvent
  • It does not appear to be viable - even if restructured
  • The market has declined for the company's services or products
  • The directors don't believe that they have the determination needed to rescue the company
  • It is used as part of the restructuring of a group

What happens in the liquidation process?

The easy answer is a good liquidator will deal with all of the following for and with you. But if you want to have a detailed guide to the process then read on.

The directors of an insolvent company elect to call an extraordinary general meeting (EGM) of the company. At this shareholders (members) meeting, the directors will report that the company is insolvent, and there is no reasonable prospect of paying existing creditors. They must explain that they believe it would be wrong to take further credit and advise the shareholders that the company should voluntarily enter liquidation.

At this general meeting the members (shareholders) will generally pass a resolution to cease trading and elect to nominate a liquidator. This liquidator then conducts a relatively quick investigation into the statement of affairs of the company, and calls the creditors to a meeting.

He /she must place an advert in the London Gazette and in two local newspapers calling this meeting and then write to all known creditors inviting them to submit a claim for their debts. The liquidator is then appointed by the creditors at a creditors meeting. This meeting is no longer required by law to be a physical meeting. From the 6th April 2017, the creditors meeting can be done online, by phone or face to face. The latter must be requested by at least 10% (by value) of creditors. 

If required, the creditors can elect to form a creditor's committee, to monitor the activities of the liquidator during the course of the liquidation. This may be to monitor fees, or the sale of assets or investigation into the director's conduct. A creditors committee must have between three and five members.

The liquidator has four main tasks:

  • To convert the assets of the business into cash (hence liquidation)
  • To adjudicate the claims of the creditors (work out how much is owed by the company)
  • To investigate and report upon the conduct of the officers of the company (directors and shadow directors)
  • To make payments (where dividends are available) to creditors in order of priority 

Very often, the directors will have tried many other avenues to save the company and the remaining unfettered assets will be modest. (Unfettered means the assets have no outside owners like the bank or HP companies).

In many other cases, the liquidator is asked to sell the assets of the business to another party. This can include the former directors or shareholders. This process is commonly known as a "phoenix".

"How do we go about all of that?"

Don't worry the liquidator will handle almost all of the paperwork, the assets and the activity after liquidation. However, it is vital that you have up to date information for the liquidator to use.

Is phoenixism legal and if so what is the process?

Yes, phoenixism is legal - provided the rules are observed and the liquidator maximises the interests of creditors, the business assets can be sold to a "connected party". In this event the liquidator must satisfy himself that he/she has

  • Obtained the best possible value for the assets. Having typically advertised the assets for sale in the media and or on the internet.
  • Ensured the creditors interests are not compromised, by investigating the conduct of the directors prior to the liquidation.
  • Confirmed that the trading name of the new company is not the same or similar to the liquidated company. 
    (Although this restriction on re-use of a trade name can be lifted if the court agrees). 

Often a phoenix company will require new cash (in the form of investment) to get the company going. This can sometimes be a stumbling block too as can the fact that the new company may have to take on the employees' rights from the old company (TUPE). This is a very complex issue that must be considered before going down the liquidation path.

Typically, if the company is very distressed and the board decided to cease trading, the normal liquidation process starts but the directors or shareholders or both buy some of the assets from the liquidator. The new company starts to trade, often under a similar name - this can be a legal minefield so make sure you get good advice if you wish to set up a phoenix company.

What are the main advantages of creditors voluntary liquidation?

From a director's point of view: the directors may avoid the risk of "wrongful trading", they draw a line in the sand - and crystallise the situation (often this is a very important benefit because it brings to an end the period of worry and terrible uncertainty) In addition to this, the creditors interests are hopefully maximised.

If wrongful trading can be proven, then the director (s) can be made personally liable for the debts of the business, usually from the point where they should have known the company had no "reasonable prospect" of surviving.

The benefits to creditors are that the directors' conduct will be investigated by a liquidator (or ultimately the DBIS), and that their position is crystallised and not worsened. Because it is the creditors who appoint the liquidator, alongside a creditors committee they can be sure that the company issues are dealt with correctly.
The directors may also be able to claim redundancy pay as well as holiday and unpaid wages (if the directors get paid through PAYE) but there are some exceptions to this. Call us on 0800 9700 539 to talk through your options. 

What are the main disadvantages of creditors voluntary liquidation?

From a directors and shareholders point of view: any tax losses built up in the period prior to the liquidation are lost, goodwill is lost (even if there is a phoenix), the director's conduct will be investigated and it is a costly exercise. In virtually all cases there is no return for the shareholders and (because they are connected creditors) the directors.

From a creditors perspective a CVL can be a negative step because: assets tend to be sold for very much less than book value, creditors claims can be much higher (for example claims from employees, landlords and secured creditors), there is often no prospect of continued trade. Coupled with the actual cost of doing the insolvency work, the return to creditors in liquidation is usually very low.

Directors Health Warning!

If the company is insolvent and you are considering liquidation please follow this simple advice:

From here on make sure you take notes of any major decisions, write down important dates and the board's actions. Always write to creditors and banks, that way you will create a written record of the issues. Have regular meetings of the board, shareholders, management and if its just you make sure you write everything down!

In months to come, when you are asked questions, this will help you remember why certain decisions were made.

What is wrongful trading?

For more detailed information see the longer guide but simply put wrongful trading only occurs when a terminal insolvency like CVL occurs. Then the liquidator must be able to prove that the director carried on trading willfully without due consideration to the creditors position. Remember (as you will have read on Is our Company Insolvent page), if the company is insolvent then the directors have a duty of care to the creditors (this is called fiduciary duty).


There will be around 8000-10,000 CVLs in the UK each year, many more in recessionary times. Many of these are necessary and correct, however if the company is viable the use of this mechanism to "restructure" the business is like using a sledgehammer to crack a nut.

We have heard some directors say they don't want to rescue the company if it means paying back the creditors, or "there is too much debt".

If tempted by this ethos remember you have a duty to maximise creditors' interests. After liquidation, if it can be proved that you set out to avoid this you may be personally liable for the debts of the company.

Before deciding to liquidate, make sure that you go through the decision making process carefully.

If you have now decided to liquidate, we can get one of our quality insolvency practitioners to talk to you. He or she will make sure a proper and thorough job is done, cost effectively. Please contact us to talk through the next steps on 08009700539.

Still got questions? Then click here for CVL FAQs. This page has more useful information - if you consider a Creditors Voluntary Liquidation to be appropriate then read this page. If there are still unanswered questions contact Company Rescue by email on

We hope that these guides have helped with your decision making process and that you now can talk to the other directors/ shareholders (if you have any) and make a decision to ACT.

Just to remind you again - never decide to liquidate a distressed company unless you think it is not viable.

We can assist with far reaching restructuring of the company including terminating leases, contracts of employment for unwanted employees, HP agreements and other onerous contracts. Would such a restructure help your company survive? If there is a viable business but you are tired and distressed we can still help.

Our advice is always consider all other options before deciding to liquidate!

Finally, if the company has decided to liquidate, we can help you with the process quickly and with understanding call us now on 08009700539 (free on landlines).

Our national team of licensed insolvency practitioners will get the problem solved quickly.

Author: Keith Steven

The process of Liquidation might be easier to explain in a flow chart and diagram

Flow chart explaining liquidation

Categories: Liquidation, Complete Guide to Creditors Voluntary Liquidation CVL

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