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Creditors Voluntary Liquidation (CVL)

When your company is under pressure from its creditors, the threat of liquidation is rarely far away. Entering into liquidation voluntarily through a Creditors Voluntary Liquidation (CVL) is an excellent alternative to being wound up by a creditor.

A CVL is a form of voluntary liquidation that’s entered into after a decision by your company’s directors. The process involves a liquidator being appointed to liquidate your company’s assets and raise funds in order to pay the company’s creditors.

During liquidation, your company will close and removed from the registrar. This means that Creditors Voluntary Liquidation will end your company’s trading life, preventing it from trading again.

Although the outcome of a CVL is similar to the outcome of compulsory liquidation, there are several advantages that make it a better option. These include a reduced risk of facing being held liable for company debts due to wrongful trading charges.

Has your company fallen behind on its payments to creditors? If you’re concerned about creditors taking action and want to wind up your company voluntarily, read on to learn more about the Creditors Voluntary Liquidation process.


Creditors Voluntary Liquidation quick facts

  • Creditors Voluntary Liquidation (also known as a CVL) is a type of voluntary liquidation that results in your company’s closure and the sale of its assets by a liquidator.
  • The cash raised by selling your company’s assets will be used to compensate creditors that are owed money by your company, although creditors may not always receive all of the debts they’re entitled to.
  • Even though you’re choosing to close your company, you still need to follow your director’s duties under the Insolvency Act 1986. Failing to follow your director’s duties can lead to charges of wrongful trading.
  • If you’re charged with wrongful trading for trading while insolvent or selling company assets during insolvency, you could be found personally liable for a certain amount of the company’s debts.
  • In most cases, entering into liquidation voluntarily through a CVL is a better option than letting a creditor wind up your company voluntarily, as it’s less likely to result in charges of wrongful trading or personal liability.


What is Creditors Voluntary Liquidation?

While many companies can recover from serious cash flow problems through a CVA or administration, others lack the cash flow or competitiveness to recover, making it preferable to close and liquidate assets in order to pay creditors.

Creditors Voluntary Liquidation is a voluntary liquidation procedure that’s initiated by a company’s creditors during insolvency. In a CVL, a company closes and chooses to appoint a liquidator to sell its assets and create liquidity.

There are several steps to the CVL process, beginning with the company’s directors choosing a CVL over alternative insolvency solutions. A meeting is held to share the plan with creditors and, if successful, a liquidator is appointed to sell off assets.

Companies typically enter into voluntary liquidation after considering all alternative options, such as pre-pack administration or a CVA. If a company has no possibility of recovering, a CVL is often the best option for the company’s creditors.

During the liquidation process, an investigation into directors’ conduct is carried out by a third party investigator. If this investigation reveals wrongdoing, the company’s directors could face charges of wrongful trading and be held liable for its debts.


What are the advantages of Creditors Voluntary Liquidation?

There are several advantages to entering into liquidation voluntarily, particularly in comparison to allowing a creditor to wind up a company through the courts. Several advantages of using a CVL to close a company are:

  • While compulsory liquidation is viewed as a legally risky procedure that puts company directors are a serious risk of being charged with wrongful trading, the CVL process is less likely to result in charges or personal liability.
  • Entering into liquidation voluntarily shows creditors that you’re interested in maximising their interests and avoiding any additional costs, even if it’s not under the ideal circumstances.
  • Since cash will be raised through the liquidation of your company’s assets, your company’s creditors will at least receive some level of repayment on their debts.
  • Since voluntary liquidation results in the closure of your company and the end of its trading history, it can relieve stress and frustration that you’ve faced as company director.
  • In most cases, you’ll have more control over the liquidation process than you would in compulsory liquidation. This is because company directors appoint the liquidator, as opposed to the company’s creditors.
  • Finally, your company will have more awareness of the process, as opposed to the surprise and urgency of compulsory liquidation. This allows directors to ensure they follow their duties under the Insolvency Act 1986.


How does the Creditors Voluntary Liquidation process work?

There are five major steps to the Creditors Voluntary Liquidation process. Although entering into liquidation voluntarily may seem complicated, it’s a relatively simple process that you can begin soon after discovering that your company is insolvent.

  1. After receiving a statutory demand or realising that your company doesn’t have sufficient money to pay its creditors, your company’s directors realise that the company is insolvent and needs to take action.
  2. Your company’s directors contact an Insolvency Practitioner to learn more about the options available to protect the company from creditor action and ensure creditor interests are prioritised.
  3. After considering all possible options to maximise creditor interests, your company’s directors decide on voluntary liquidation in order to raise cash and pay creditors.
  4. The company stops trading. A meeting is held between company directors, the insolvency practitioner and creditors. At this meeting, the directors of your company appoint a liquidator.During this meeting, a Statement of Affairs outlining the company’s financial condition and liquidation plans is prepared. In some cases, the creditors may prefer to appoint their own liquidator to sell the company’s assets.
  1. The liquidation process begins and the company’s assets are sold. Following the liquidation of company assets, an investigation into director conduct is carried out to determine if directors violated the Insolvency Act 1986.


Could you face wrongful trading charges or personal liability?

Although entering into administration voluntarily reduces the risk of facing charges of wrongful or fraudulent trading, you could still be charged if you didn’t follow your director’s duties after realising your company was insolvent.

Under the Insolvency Act 1986, you need to stop trading immediately upon learning that your company is insolvent. You must also cease taking on any new business or selling company assets during insolvency.

If you’re found to have acted wrongly during insolvency, you could be held liable for a percentage of your company’s debts. There is also a risk of you facing limitations on your ability to act as a company director in the future.

Are you concerned about facing wrongful trading charges? Contact us as soon as you become aware that your company is insolvent to learn more about what you need to do under the Insolvency Act 1986 to avoid committing a civil wrong.


How is a CVL different from compulsory liquidation?

There are several significant differences between a CVL and compulsory liquidation, both for company directors and creditors. The most significant difference, and major advantage, is that you have more control in a CVL than in compulsory liquidation.

In a CVL, your company’s directors are usually able to choose the IP and liquidator independently. In compulsory liquidation, a liquidator is appointed by creditors as part of the winding up process, or by the court.

When you enter into liquidation voluntarily, you also benefit from the advice and assistance of the Insolvency Practitioner. This advice can prevent you from acting against your director’s duties and exposing yourself to personal liability.


What alternative options are available for your company?

While voluntary liquidation is typically the best option for unviable companies, a company that can recover from its cash flow issues and return to normal trading may experience a better outcome using an alternative insolvency solution.

Two of the most effective insolvency solutions for insolvent but viable companies are entering into a Company Voluntary Arrangement or administration. Both are explained in greater detail below:

Company Voluntary Arrangement

A Company Voluntary Arrangement, or CVA, is a formal agreement between your company and its creditors. In a CVA, your company will pay back its debts over a specific period, typically in the form of a monthly payment.

One of the biggest advantages of a CVA is that your company can often write off a percentage of its debts in order to improve cash flow and make repaying creditors more achievable.

Your company can also benefit from the extended payment period of a CVA, which can often last for five years or more. This improves cash flow and ensures creditors are repaid without affecting your company’s long-term solvency.

Learn more about Company Voluntary Arrangement



If your company is insolvent and under pressure from its creditors, entering into administration can protect it against court action and provide a stable path for its financial recovery.

Administration is an insolvency solution that involves appointing an administrator to manage your company during insolvency. The administrator will ensure creditor interests are prioritised while attempting to turn around your company.

The administration process allows your company to enter into a CVA or pursue a range of recovery options. This makes it an effective solution for companies that have the potential to generate strong cash flow but need to restructure.

Learn more about administration


Get expert financial help

If your company is insolvent, unviable and under pressure from creditors, a CVL could be its most effective option for raising funds and ensuring creditors receive some amount of cash on their debts.

Although Creditors Voluntary Liquidation will result in the closure of your company and the sale of its assets, it will typically create a better outcome for creditors than a compulsory liquidation, all the while reducing your risk of wrongful trading charges.

We have extensive experience with the liquidation process and provide detailed and actionable advice to your company. We can also help you explore other options for insolvency, such as a Company Voluntary Arrangement of administration.

Contact us to speak to an insolvency expert and learn more about the process of entering into liquidation voluntarily. We can review your company’s finances and provide the advice and assistance you need to make the right decision.


Learn more about liquidation