Skip to Main Menu MENU Creditors' Voluntary Liquidation (CVL) A Creditors’ Voluntary Liquidation – often abbreviated to CVL – is a formal liquidation process which brings about the end of an insolvent company. The UK's Market Leader Licensed Insolvency Practitioners Affected by Covid-19? 100% Confidential Support Home Closure Options Creditors' Voluntary Liquidation (C... Understanding the liquidation of an insolvent company through a CVL A Creditors’ Voluntary Liquidation – often abbreviated to CVL – is a formal liquidation process which brings about the end of an insolvent company. A CVL can only be entered into under the guidance of an appointed liquidator who must be a licensed insolvency practitioner. What happens during a CVL? The CVL process will be handled from start to finish by the appointed insolvency practitioner. They will have a number of specific roles and responsibilities during the company’s liquidation, these range from identifying company assets, liaising with outstanding creditors, through to ensuring the company is brought to an orderly shutdown and its name removed from the register held at Companies House. Trading must cease, all employees will be made redundant, and the company will no longer exist as a legal entity at the end of the process. Any company debts which remain at this point will be written off, unless these have been secured with a personal guarantee (PG). If PGs have been given, these will crystalise at the point of liquidation and responsibility for repaying this borrowing will fall to the individual who provided the PG which would typically be the company director. Who can put a company in liquidation? A company can be placed into liquidation in one of two ways: either voluntarily by the company’s directors and/or shareholders; or alternatively an insolvent company can be forced into compulsory liquidation if this is ordered by the courts. Compulsory liquidation is often the result of creditors submitting a winding up petition against the company in relation to unpaid debts. As the name suggests, a Creditors’ Voluntary Liquidation is a voluntary way of placing an insolvent company into liquidation and one which is initiated by directors/shareholders when they believe their company’s financial problems have taken it beyond the point of rescue. While the prospect of placing a company into an insolvent liquidation process such as a CVL is far from an ideal situation – after all, no one goes into running a business with the intention of it failing – in many cases this is often the best solution for the company, its employees, and creditors alike if the financial difficulties which are being experienced are unlikely to improve in the near future. Why would I voluntarily choose to place my company into a CVL? As the director of an insolvent company, you have certain legal responsibilities. One of these is that once you know the business to be in an insolvent position, you must endeavour to protect outstanding creditors and this means placing their interests above those of your own or those of your fellow directors or shareholders. In real terms, this means you must not engage in any activity which could worsen the position of creditors or increase their losses any further. In many cases this means you will be required to cease trading immediately, although there are some occasions when it may be determined that continuing to trade an insolvent company may be beneficial to creditors if this could increase returns. This is an extremely complex area, however, and you are strongly advised to consult a licensed insolvency practitioner once you know your company is insolvent. By placing your company into a CVL process once you know it to be insolvent, you are demonstrating your desire to protect outstanding creditors as far as possible, and ensuring you are acting in a way which is compliant with your legal duties. Not only this, but placing a struggling company into liquidation, can come as a huge sense of relief, particularly if you have been dealing with increasingly impatient creditors and worrying about what the future holds for you as well as your employees. Following a company entering a CVL, any debt which remains unpaid (unless personally guaranteed) will be written off. This means creditors will not be able to chase you personally for the money outstanding. Once a company enters a CVL, this also allows employees to receive redundancy should they qualify. Solvent vs Insolvent Liquidations: MVLs and CVLs A CVL is a voluntary liquidation process designed to bring about the end of an insolvent company. However, liquidation is not something reserved for insolvent businesses. An alternative procedure known as a Members’ Voluntary Liquidation – or MVL – is aimed at solvent companies who wish to bring their business operations to an end. By placing the business into an MVL, proceeds from the company can be extracted in a tax-efficient and cost-effective manner, while allowing the business to be wound down in an orderly manner. In order to place your company into an MVL, you must sign a declaration of solvency which attests to the fact that the company is solvent, and is in a position to fully repay all outstanding creditors. Falsely signing a declaration of insolvency is a serious matter and the repercussions can be severe. This is why before deciding on any form of company liquidation you must make it a priority to seek the advice and guidance of a fully licensed insolvency practitioner where you can discuss your company’s situation, financial position, and future viability, to ensure the most appropriate action is taken. Liquidation vs Administration Although often mistaken for being the same thing, liquidation and administration are two separate and distinct insolvency processes. While liquidation through a CVL brings about the ultimate end of an insolvent company, administration on the other hand, offers a chance of the business being rescued through a process of restructuring and refinancing. A company may be placed into administration if there is a reasonable chance that the business (or parts of the business) can be rescued, or if it is determined that placing the company into administration will result in better returns for creditors compared to if the company was placed into a CVL without first being in administration. Administration offers a level of protection to a distressed company which may be facing threats of legal action from disgruntled creditors. Once a company enters administration it is granted a moratorium which halts any ongoing litigation, and prevents any new legal action being taken. During this time the appointed administrator – who must be a licensed insolvency practitioner – will work to restructure the business to allow it to continue to trade. It must be said here, that administration is not a long-term position for a company to be in; sooner or later it must exit administration. This may be through a sale, a continuation of trade, or often into an alternative insolvency process such as a CVA or a CVL if the business cannot be saved. What happens after a CVL? Once the CVL has completed, the company’s name will be removed from the register held at Companies House. This will mark the ultimate end of the company and at this point it will cease to exist as a legal entity. Just because you have been the director of a company which has been liquidated through a CVL does not mean that you will be unable to run a limited company again. Unless you have been disqualified from acting as a director, you are free to set up another company and begin trading again, whether this is in the same sector or a completely separate field entirely. There are however restrictions on reusing the same or a similar trading name as the liquidated company, so be sure you speak to your insolvency practitioner about your future intentions if you are keen to incorporate another limited company following the CVL. Share: Share on Linkedin Share on Facebook Share on Twitter Related Nearest office Find Out More → Contact us Find Out More → Julie Palmer Regional Managing Partner 0800 063 9221 Contact us Meet our Team of Experts FREE Company Director Guide Download your copy 116 Regional UK Offices Find your local Begbies Traynor office and speak to an adviser today. Find your Local Office Company Director Professional Adviser General Enquiry 0800 063 9221 Call our Confidential Advice Line. Calls to this number are free of charge. Call us now... Request a Meeting We invite you to come and discuss your enquiry with us at your convenience. Request a meeting... 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