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Creditors’ Voluntary Liquidation

Creditors’ Voluntary Liquidation: All You Need to Know

A Creditors’ Voluntary Liquidation (CVL) is a formal insolvency procedure. As opposed to compulsory liquidation, which is forced on a company by creditors, a CVL involves the directors of an insolvent company volunteering to bring their business to an end and wind up the company.

Creditors’ Voluntary Liquidation is a legal process defined under the Insolvency Act 1986 and associated legislation. Usually, a company will enter into a CVL following attempts to turn things around following financial hardship, which may have been ongoing for some time. Whilst the situation is not ideal, in circumstances where it just hasn’t been possible to return to profitability, voluntary liquidation using a CVL is often the best situation for everyone involved.

In this guide, we will explain what is involved in a CVL and how it can benefit directors seeking to move on. We will also explore how the process works, directors’ responsibilities, what happens once the CVL is complete, and how a licensed insolvency practitioner can guide you through the process.

What is a Creditors’ Voluntary Liquidation?

For an unprofitable company, voluntary liquidation is often the best way to bring things to a close. When the directors and owners of a business are unable to pay creditors, they can choose to shut down. To be eligible for a CVL, the company will usually be insolvent.

A company is deemed insolvent if it is unable to settle its debts when they become due, or when the value of its liabilities is greater than the total value of its assets. In other words, it has a negative balance sheet.

There are three tests for insolvency:

  • The cashflow test – can the company pay its debts when they are due?
  • The balance sheet test – are the company’s assets exceeded by its liabilities?
  • The legal action test – does the company have any demands for payment that have been upheld or likely to be upheld by a court?

It is the directors’ duty to recognise if their company is insolvent , and to act to maximise creditors’ interests. 

When entering into a CVL, it is necessary to appoint a liquidator. Because this is a voluntary process, there is no need for court or Official Receiver intervention, making it faster than a compulsory liquidation.

How does voluntary liquidation benefit directors?

When directors and business owners recognise at an early stage that there is nothing they can do to get things back on track, they must  take decisive action to bring a loss-making organisation to a close.

It also shows third parties that the appropriate steps are being taken at the right time, making it less likely that directors will be held personally liable for the company’s debts.

With a CVL, directors can move on and, where there are realisable assets, creditors are able to recover as much of what they are owed as possible. So it can be beneficial for all involved.

Voluntary liquidation brings a company to a close, and deals with all the outstanding debts in the process. The realisation of assets will be optimised as much as possible for the benefit of creditors, although in many cases, there will be a shortfall.

Once the company is liquidated however, any shortfall will be automatically written off. This is unless a company debt has been personally guaranteed. If this is the case, whoever has guaranteed the debt will remain personally responsible for it until it is settled.

It is important not to confuse a Creditors’ Voluntary Liquidation (CVL) with a Members’ Voluntary Liquidation (MVL). An MVL is used by solvent companies to allow shareholders to extract funds tax-efficiently when closing their business.

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How to place a company into voluntary liquidation?

You will need to engage the services of a licensed insolvency practitioner. They will provide you with the tailored guidance you need, and it is highly advisable to seek their advice as soon as you realise that your company is in financial difficulty.

An insolvency practitioner will assess your individual situation and present you with a range of options. These may include business rescue strategies, or restructuring or protective procedures such as Administration, or a Company Voluntary Arrangement.

Should the business be deemed beyond rescue, however, or if the shareholders and directors prefer to close the company down, then voluntary liquidation via a CVL is likely to be the most appropriate route forward.

What are the steps involved in a CVL?

Creditors’ Voluntary Liquidation is a legal process defined under the Insolvency Act 1986 and associated legislation.

There are a number of required steps when placing a company into a CVL:


Shareholders’ resolution – following consultation with an insolvency practitioner, the directors must seek a resolution from shareholders to wind up the company.  Usually, they will call a general meeting of shareholders with 14 days’ notice. At the meeting, shareholders will be asked to vote as to whether they agree to the winding up of the company. 75% by value of shares represented at the meeting must agree in order to pass a ‘winding up resolution’. A liquidator will also be formally appointed.

Alternatively, a written resolution for the winding up of the company may be circulated to shareholders, and the resolution will be passed once shareholders representing 75% by value of shares have indicated their agreement to the resolution.


Creditors’ notification – in a CVL creditors do not decide whether the company goes into liquidation, but are required to agree to the proposed choice of liquidator, or appoint another person to be liquidator.  They may also choose to form a committee, as well as pass resolutions relating to remuneration of the liquidator. The proposed liquidator will help the directors in calling decision procedures consider these resolutions, which are nearly always scheduled to be the same date as the shareholders’ meeting.. They will also assist in providing creditors with a report on the company and information about its financial position. 

Creditors are entitled to a minimum of three business days’ notice of the proposed CVL. Mostly, it is presumed that creditors will not oppose the directors’ proposed of liquidator, so the ‘deemed consent’ procedure will be used, which is cheaper to do and avoids the need for meetings. A virtual meeting may alternatively be called if it is thought creditors may have any queries or concerns about the process. The directors cannot call a physical meeting of creditors, but one may take place if sufficient creditors request it.


Notification – once the resolution to wind up the company has been passed by the shareholders, the liquidator will file a copy at Companies House within 15 days, and advertise it in The Gazette within 14 days.


Investigation – the liquidator will conduct an investigation into the financial affairs of the company. This will initially involve information provided by the directors, but once in office the liquidator will be within their rights to request all the company’s records so that they are in the best position to achieve the most beneficial outcome for creditors, because it is the creditors that the liquidator is working in the best interests of. The liquidator will also make a report on the directors’ conduct to the Insolvency Service.


Realisation and distribution of assets – the liquidator will manage the realisation of company assets and the settling of debts in a strict order of priority.

Creditors’ Voluntary Liquidation
Creditors’ Voluntary Liquidation

What happens after the CVL is complete?

Once the CVL is complete, the company will be struck off the Companies House register.

Any liabilities which remain unpaid will be written off, unless they were personally guaranteed.

The only automatic restriction on the directors in a CVL is that they are banned for five years from forming, managing or promoting any business with the same or similar name as the liquidated company. This includes the company’s registered name and any trading names where applicable.


What are directors’ responsibilities during liquidation?

Whilst the executive decision-making powers of directors come to a halt on liquidation and directors no longer have control of the company or anything it owns and cannot act for or on behalf of the company, some directors’ duties remain.

In a CVL, directors must provide the liquidator with information pertaining the company’s affairs, including financial records and paperwork. They must also attend interviews with the liquidator where reasonably requested, pass over the company’s assets, and have a general duty to cooperate.

How can Insolvency Online help with Creditors’ Voluntary Liquidation?

Insolvency Online is a trusted firm of corporate recovery specialists and licensed insolvency practitioners with a proven track record in navigating businesses out of financial distress.

We have extensive experience in guiding directors through voluntary liquidation where best efforts to turn the business around have not been fruitful.

Our experts, acting as official appointed liquidator, will take care of providing creditors with the necessary information, as well as assisting directors in preparing the required documentation to ensure full compliance with the Insolvency Act and Rules.

You will be kept fully informed of the process throughout, and of your responsibilities in dealing with the winding up of the company.

Creditors’ Voluntary Liquidation

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As well as acting as liquidator for insolvent companies that wish to enter into voluntary liquidation via a Creditor’s Voluntary Liquidation, Insolvency Online offers a solution-finding approach to business rescue, personal financial difficulties, financial restructuring and recovery matters. If we can assist you in any way, please do not hesitate to get in touch.




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Frequently Asked Questions

Who is responsible for the liquidation fees?

As director, you are responsible for covering the voluntary liquidation fees, although in a lot of cases, these can be deducted from the company’s assets. Many directors are also classed as employees of the company and will therefore be entitled to a redundancy payment. Director redundancy works mostly in the same way as it does for employees, and can be very helpful for a director who is struggling financially due to their company becoming insolvent.

What is a preference payment?

When you are aware that your company is insolvent, it is important that you do not pursue any further lines of credit, and vital that you are careful when making payments to creditors if you do not have sufficient funds to pay everyone what they owe. If you pay one creditor over another without following the prescribed rules of priority, it could be classed as a preference payment, and you could become personally liable for repaying outstanding sums.

What order are creditors paid in during a voluntary liquidation?

During a Creditors’ Voluntary Liquidation, creditors must be paid in the following order: 

  1. Secured creditors with a fixed charge– Banks and asset-based lenders that hold a fixed charge over a business asset such as property, machinery, or vehicles.
  2. Preferential creditors– Employees owed salary and holiday pay arrears are considered preferential creditors and as such should receive a payment once fixed charge secured creditors have been paid.
  3. Secured creditors with a floating charge– Those who hold security over moveable assets such as stock and raw materials, as well as fixtures and fittings in commercial premises.
  4. Unsecured creditors– Trade creditors who have lent to the business, or extended a line of credit but did not have it secured by an asset. Most creditors fall into this category, which covers trade creditors, and unsecured finance agreements such as loans and credit cards. In many CVLs, unsecured creditors will usually receive a minimal distribution, or may be left out altogether.
  5. Shareholders– Shareholders are last on the priority list and will therefore only receive a distribution if all other creditors have been paid in full. In the case of a Creditors’ Voluntary Liquidation, there will not be surplus funds remaining at this stage to give shareholders a distribution.

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Get in touch today to arrange a free, confidential consultation to discover how we can assist you and your company in navigating its way out of financial difficulty. Whether you wish to rescue the business, or are seeking ways to wind up the company on a voluntary basis, our experts can help.