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Creditors’ Voluntary Liquidation is a formal insolvency process outlined under the Insolvency Act 1986 allowing directors to voluntarily close an insolvent company and settle its affairs. A company is considered insolvent when it cannot pay its debts or when its liabilities exceed its assets.
The term “voluntary” is used because the process is initiated by the company’s directors, rather than being enforced by a court as in compulsory liquidation. Once the decision is made, the liquidation process is overseen by a lawyer; their role is to sell the company’s assets, repay creditors, and formally dissolve the business.
Opting for a CVL provides a structured way to liquidate a company, helping directors to meet their legal obligations while protecting creditors’ interests.
Download our Complete Experts Guide to CVLs
A Creditors’ Voluntary Liquidation is initiated by a company’s directors when they recognise that the business is insolvent.
To start the process, the directors arrange a meeting of the company’s shareholders, during which, a resolution is passed to place the company into liquidation. An insolvency practitioner is then appointed to act as the liquidator.
Once appointed, the liquidator takes control of the company’s operations and assets – their responsibilities include:
The implications of a CVL for Directors comes down to how they have acted in the business. If they have acted responsibly and in good faith then the CVL can be a great help in providing protection from further legal action. When we say ‘good faith’, this means acting in the best interest of creditors once the company became insolvent – avoiding actions that could worsen the financial situation or unfairly disadvantage creditors.
However, if directors are found to have acted recklessly, negligently, or fraudulently, they could still face personal liability for losses suffered by creditors. This includes delaying action when it is clear the business is insolvent, which also increases the risk of being accused of wrongful trading. Therefore, it’s important to get professional advice as soon as possible.
If you’re unsure whether your company is insolvent, consider these common tests for insolvency:
Taking swift action to liquidate a company through a CVL can help directors avoid further legal complications and demonstrate that they acted responsibly in the face of financial difficulties.
When a company enters a CVL, employees’ contracts are typically terminated. However, employees may be entitled to claim redundancy pay, unpaid wages, or other statutory entitlements through the government’s National Insurance Fund.
For employees, the liquidation process can be unsettling, but the National Insurance Fund provides some financial protection, ensuring that employees are not left completely without support. Directors should communicate openly and honestly with staff to explain the situation and their rights.
It’s important to initiate a Creditor’s Voluntary Liquidation at the right time, to avoid potentially severe implications for creditors, directors and employees. Here are some common signs that it may be time to consider a CVL:
Creditors are threatening legal action: If creditors issue a statutory demand, winding-up petition, or other legal threats, this is a clear signal that you need to act.
The company is no longer viable: The business cannot generate enough revenue to cover operating costs or future growth appears unsustainable.
Debts cannot be paid on time: Missing payments to suppliers, HMRC, or other creditors indicates that the company is struggling financially.
The company has accumulated too much debt: Excessive liabilities can make recovery impossible, and directors may need to consider liquidation to prevent further losses.
Concerns about wrongful trading: Continuing to trade while insolvent risks accusations of wrongful trading, which can expose directors to personal liability.
If any of these issues apply, it’s crucial to seek advice from an insolvency practitioner to explore your options and understand the advantages and disadvantages of a CVL. Acting sooner rather than later will help to protect directors’ interests and ensure creditors are treated fairly.
A training company had grown fast mainly on the back of one key contract. A fast growth but not yet profitable business with good prospects, turned into sharply loss-making business when the contract came to a messy end.
The directors struggled on and tried to reduce employee numbers, but they were faced with tribunals and redundancy costs that the company could not meet. Even a company voluntary arrangement (CVA) could not help the company and it was time to liquidate it.
The Creditors’ Voluntary Liquidation process involves several key steps to liquidate the company’s assets and repay creditors as quickly as possible. Below, we’ve provided an overview of how the procedure will look, step by step.
Board meeting:
The directors hold a board meeting to assess the company’s financial position. If the company is deemed insolvent, a resolution is then passed to begin the CVL process.
Appointment of an insolvency practitioner (IP):
Next, the directors must appoint a licensed insolvency practitioner to act as the liquidator. The IP oversees the entire process, including selling the company’s assets, settling debts, and distributing proceeds to creditors.
Shareholders’ meeting:
A shareholders’ meeting is held (often just before the creditors’ meeting) to formally agree to place the company into liquidation. Shareholders must pass a resolution to approve the CVL and the appointment of the IP.
Creditors’ meeting or deemed consent process:
In a traditional CVL, the insolvency practitioner holds a creditors’ meeting within 14 days of the board meeting. Creditors are informed of the company’s financial situation, the proposed liquidator, and the estimated Statement of Affairs (SofA), which outlines the company’s assets, liabilities, and likelihood of creditor repayment.
Alternatively, the deemed consent process can be used. Notices are sent to creditors about the proposed liquidation, and if no objections are raised within 14 days, the process proceeds without an in-person meeting.
Liquidation begins:
Once creditors approve the CVL, the liquidator begins the process of:
Finalisation and dissolution:
After the assets are liquidated and proceeds distributed, the liquidator prepares a final report and may hold a final creditors’ meeting. The company is then formally dissolved, and its name is removed from the register at Companies House.
The process stops creditor pressure and ends those sleepless nights, ultimately helping you get on with your life. So, if you would like to liquidate your company, call us on 0800 9700539. We can talk you through the process, organise the legal paperwork and begin proceedings.
The cost of a Creditors’ Voluntary Liquidation depends on several factors, such as the complexity of the case and the time required for the insolvency practitioner to carry out their duties.
Factors affecting the cost of a CVL include:
While the costs may seem daunting, doing nothing could result in even greater financial and legal consequences for directors.
For straightforward cases (e.g., a company with one creditor, such as unpaid Bounce Back Loans or HMRC debts), the typical fee starts at £4,000 + VAT.
For more complex cases involving multiple creditors, employees, landlords, and suppliers, a tailored quote is provided after an initial meeting with the directors.
Delaying action can worsen the situation, increasing the financial burden for both directors and creditors. Bringing a professional on board early will make sure that your company’s affairs are resolved efficiently and legally, avoiding additional penalties or accusations of wrongful trading.
For more information on the this, read our dedicated guide on the costs of liquidation
A common concern for directors is how to cover the cost of a Creditors’ Voluntary Liquidation if the company has no remaining assets or funds. In this situation, the liquidation fee will need to be paid personally by the director.
It’s worth noting that many directors will have already received income from the company in the form of salaries or dividends. In a sense, this means that the company has indirectly contributed to the liquidation costs.
It is possible that directors can claim redundancy, like any other employee, from the Redundancy Payments Office (RPO). However, be warned, this is by no means guaranteed and there is extra scrutiny of directors by the RPO. If you owe the company money then this will be offset what you are entitled to.
The timeline for a Creditors’ Voluntary Liquidation depends on several factors, including the size and complexity of the company.
The first step, where the liquidator is officially appointed and the directors’ powers cease, typically takes 1–2 weeks.
In rare cases, where 90% of shareholders agree, a CVL can be initiated within seven days. This is more common for businesses with perishable assets, such as fresh food, that require immediate action.
Once the liquidation begins, the process of selling assets, conducting investigations, and completing legal filings can take anywhere from 1–2 years, depending on the complexity and size.
Once the Creditors’ Voluntary Liquidation process is completed, all the company’s assets will have been sold, creditors will have been reported to, and any proceeds distributed. The company is then officially struck off the Companies House register, meaning it ceases to exist.
As the debts are tied to the company, they are extinguished when the company is dissolved. However, if directors have provided personal guarantees for any company liabilities (e.g. loans or leases), creditors can still pursue the directors personally for repayment.
The liquidator will have reviewed the directors’ conduct during the company’s operations. Assuming no evidence of wrongful or fraudulent trading is found, directors can move forward without issue.
To learn more about post-liquidation considerations, download our guide.
In very rare cases, a Creditors’ Voluntary Liquidation can be stopped, if sufficient funds are found to repay all creditors in full before the process is completed.
However, reversing a CVL is highly unlikely. If funds or resources do become available, it may be more practical to allow the liquidation to proceed and then buy back the company’s assets at a fair market value.
One of the advantages of a CVL is that it allows for an orderly wind-down of the company’s affairs, which can help to maximize the value of its assets and ensure a fair distribution of funds to creditors. It can also help to avoid the need for a compulsory liquidation, which can be more expensive and time-consuming.
You can be a director of a new company after you have liquidated the old one. However, there are some rules governed by the Insolvency Act 1986 Section 216 that puts resrictions on the reuse of company and trading names. Be careful about reusing names and read our advice on this here