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Detailed Guide to Creditors Voluntary Liquidation (CVL)

Published on : 5th October, 2023 | Updated on : 29th May, 2025
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Table of Contents

  • How do I know if my company is insolvent?
  • How do I start the process of liquidation?
  • What is the The Liquidation Procedure?
  • Frequently asked questions about Creditors Voluntary Liquidation
  • How much does it cost to put a company into a CVL and how do we pay that?
  • What Are The Implications for Directors of a liquidated company

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.

How do I know if my company is insolvent?

A company is insolvent if it is unable to pay its debts as and when they are due, or the value of its liabilities is larger than the total value of its assets i.e. it has a negative balance sheet.  However, having a negative balance sheet does not necessarily mean that the company will go into an insolvency process.

If you company has legal action against it over an unpaid debt, then it is also deemed to be insolvent.  Please see our page on whether your company is insolvent for more detailed information.

If you company is insolvent, then you should Get a quote from a licensed insolvency practitioner who can guide you thought the process.  Continuing to trade when your company is knowingly insolvent is risky and could expose you to personal liability for the companies debts.

 

How do I start the process of liquidation?

A Creditors’ Voluntary Liquidation is initiated by a company’s directors when they recognise that the business is insolvent.  They will need to employ the services of a licensed insolvency practitioner who will help them prepare the necessary documents called a statement of affairs

  1. Director Resolution & IP Appointment
    Once you’ve taken advice from a licensed Insolvency Practitioner (IP) and decided to move into voluntary liquidation, the directors (or sole director) formally resolve—at a board meeting or by written resolution—to convene shareholder and creditor meetings on a chosen “Decision Date.” At that point, your IP is officially instructed to manage the liquidation and to prepare the company’s Statement of Affairs, setting out all assets, liabilities and estimated realisable values.
  2. Notice to Shareholders & Creditors
    After the Decision Date is set, notices go out: shareholders get details of the general meeting, and creditors receive notice of the Decision Date along with the Statement of Affairs. Your IP also provides a concise report covering the company’s recent trading history, extracts from the latest accounts and a deficiency account showing movements—and projected shortfalls—since the last accounts. All creditor papers must be issued at least one business day before the Decision Date, ensuring everyone has up-to-date, transparent information.

This straightforward, two-step approach keeps you fully compliant, maintains clear communication with stakeholders and lets your appointed IP guide you smoothly through the voluntary liquidation process.

What is the The Liquidation Procedure?

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.

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. For the company to enter voluntary liquidation at least 75% of shareholders must resolve to wind the company up (unless the companies articles say otherwise)

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:

  • Realising the company’s assets (e.g., selling property, equipment, and stock)
  • Settling any legal disputes
  • Distributing funds to creditors in the legal order of priority

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.

Frequently asked questions about Creditors Voluntary Liquidation

If we start the CVL process what will the banks reaction be?

Naturally the bank will be disappointed. It is likely that the bank will have some form of security – typically through a debenture. If the banks’ lending to the company is significant and the company is insolvent they will probably have taken steps to learn more about the company’s insolvent position and how its security looks already.

If the bank debt is not material, they will often wait until the liquidator recovers the assets and receive payment in order of priority. In liquidation the bank must give the liquidator permission to collect his fees.

We have not paid the VAT or PAYE for months, if we propose a CVL what will HMRC do?

The debt which you have built up is important because HMRC  is an “involuntary” creditor – in other words it cannot stop you building up debt (unless it takes legal action to wind the company up – see COMPULSORY LIQUIDATION) and because the funds you have failed to pay over are your employees tax and NIC deductions or Valued added tax.

HMRC may ask the liquidator about the actions of the directors prior to the liquidation – did they know they were trading insolvently? Did they take reasonable steps to protect the other creditors? These questions can be complex, and you should take legal advice if you are concerned.

Really, though if the debt is modest and the directors have tried their best, there will be little reaction to a CVL from HMRC.

 

A quality RMT KSA tip: make sure you file ALL PAYE and tax returns, P11Ds, VAT100 returns and so on. HMRC takes a dim view of not filing these even if you cannot pay the tax.

 

What will my creditors think?

Most creditors will have to adopt a pragmatic approach. In a CVL it is VERY unlikely that they will get more than a few percent of their debts back. They may however be angry and want to know why the company failed.

They can attend the creditors meeting (if they request one), become part of the creditors committee and generally keep in contact with the liquidator. However (unless the actions of the directors can be shown to be wrongful, negligent or fraudulent) they cannot take any further action.

Can we use the same company name again?

There are certain very strict restrictions on re-use of trade names. It is possible, provided the liquidator or the court agrees, but the rules are tight and are aimed at “passing off”. For detailed answers to this question take professional advice or email us.

S216 Insolvency Act sets out strict rules for this and you should always take great care to get professional advice. Did you know it is a criminal offence to pass off as the old company?

Will I be personally liable for the company’s debts?

The veil of incorporation theoretically protects the directors from being liable in the event of an insolvent liquidation. But, remember the liquidator must investigate the conduct of the officers of the company in the 3 year period up to the closure of the company.

If the liquidator can prove that there were actions by the directors that contravene the insolvency or company legislation then they must file a report with the Department for Business and Trade (DBT) Likewise they may take action on behalf of the creditors to recover assets of the company.

It is possible that the DBT can start proceedings to strike off the officer if a case can be made. Finally, the Crown creditors may take legal action to recover monies from directors if certain conditions apply. If in doubt take advice from an insolvency practitioner (IP) or email us.

Can I avoid personal guarantees to the bank?

Not easily. If the directors have given personal guarantees (PGs) and the assets of the business are insufficient to repay the bank in full then it is possible that the bank will take action, to recover their money, against you.

If the assets are sufficient and the bank is repaid in full your PGs will be cleared – but always pursue the bank to have them nullified.

Talk to us about the debt situation your company has and any PGs a sensible approach could allow the bank to recover much of their debt thus reducing your liability.

Q: What happens to employees in a CVL?

There is safety net of measures to reduce the financial hardship of employees in the event of liquidation. They will receive redundancy from the Redundancy Fund. They will also receive (capped to £719 per week) payments in lieu of notice, holiday pay and arrears of pay.

Q: Why not just pay employees and then liquidate the company?

What appears to be a noble gesture by the employer can in fact be an illegal step. Under the rules of preference (s239 Insolvency Act 1986) such a payment may put the employees in a better position than they would have been and, if it can be proved that there was a desire to make them better off, this could be a “preference”.

If this is proven they may have to pay this back to the liquidator! So no, the best method is to use the safety net described above.

We have big tax losses – will we lose them in a CVL?

Yes.

What is wrongful trading then?

This is where the officers of the company failed to act correctly when they knew that the company was insolvent, they failed to take the actions of a “reasonable person” to maximise the body of creditors position and they wilfully continued to take credit that they understood they might not be able to repay.

Failure to submit annual returns and accounts is also just cause. If the liquidator can prove that these actions took place he can start an action or seek advice. It can be grounds for the liquidator and the DBT to start recovery or disqualification actions.

See a guide to wrongful trading here for further information or take advice from RMT KSA.

How do we pay the cost of a CVL if we have no cash or assets?

A common problem that faces directors where the assets have all been used to pay creditors

Essentially there are the following options to cover the cost; They are the number of creditors, assets and geographic area.

Dissolution: cease trading and wait three months, apply to the Companies Registrar to dissolve the company (almost impossible if lots of creditors chasing for payment) under the Companies Act. If there is any material tax debt HMRC will not usually allow dissolution.

The directors can pay for the cost out of their own funds. I know you have probably not had a lot of money out of the business but this is a very good way of ensuring the burial is done properly.

Cease trading and wait for a creditor to wind the company up compulsorily. This leads to more pressure on the directors.

If the company has modest assets that can be sold for say £1-4k, on eBay for example, then you could top up the rest? If you are a retailer sell off the stock before closing the doors. Keep the cash takings for the fees. Or you could use your credit card to spread the cost.

If the pressure is too much and you have the funds to pay, then paying the fee yourself is the smartest way of stopping the creditors pursuing you. So, if you really want an end to reporting, compliance, creditors chasing you and the directors then CVL is the BEST OPTION.

How much does it cost to put a company into a CVL and how do we pay that?

Any liquidation costs start at £5k + VAT

Why is it so much?

Well for a start

  1. only licensed insolvency practitioners can perform the role of liquidator.
  2. They must be licensed by the DBT and regulated by a professional body. This costs money to qualify and relicense each year.
  3. The liquidation process has very strict rules of advertising in the local press and London Gazette; this costs money.
  4. They must take out insurance for their actions and any company assets (this is called a bordereaux).
  5. They must deal with all creditors. If there are lots of creditors they must all be written to and files set up to cope with incoming mail, votes and queries.
  6. Finally, they do need to investigate the conduct of the directors to check there is no impropriety.

 

What Are The Implications for Directors of a liquidated company

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.

How Long Does A CVL Take?

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.

What happens after the liquidation is completed?

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.

 

Watch the Video Below That Explains The Process

 

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