Creditor’s Voluntary Liquidation

A CVL is a procedure that enables directors to wind down an insolvent limited company of their own volition.

What is a Creditors Voluntary Liquidation?

Creditors’ Voluntary Liquidation (CVL) is a formal procedure that allows directors to dissolve an insolvent company (unable to pay its debts) under the guidance of a licensed insolvency specialist known as a liquidator. The liquidator converts the company’s assets into cash to settle outstanding debts, leading to the company’s dissolution.

Opting for a CVL is generally more favorable than being compelled to shut down by a creditor, as it grants directors greater control over the process. This empowers them to ensure that creditors are compensated fairly.

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Creditors Voluntary Liquidation

Initiating Creditors’ Voluntary Liquidation (CVL): An Overview

Creditors’ Voluntary Liquidation (CVL) is a formal process that allows a company to wind up its affairs and dissolve. The authority to initiate CVL rests solely with the company’s directors. To commence this procedure, directors must convene a shareholders’ meeting to propose and pass a resolution to liquidate the company. Once approved, the shareholders appoint a liquidator, an insolvency practitioner tasked with overseeing the liquidation process.

CVL Eligibility Requirements

To qualify for CVL, a company must meet specific criteria:

  1. Inability to Pay Debts: The company must be unable to pay its debts as they fall due.

  2. Company Registration: The company must be registered under the Companies Act 2006.

  3. Minimum Debt Threshold: The company must owe at least £750 to its creditors.

  4. Director Agreement: The company’s directors must unanimously agree to liquidate the company.

  5. Shareholder Notification: The company’s shareholders must be informed of the liquidation plan.

  6. Insolvency Practitioner Appointment: An insolvency practitioner must consent to act as the liquidator.

  7. Creditor Approval: The creditors must approve the appointment of the liquidator.

  8. Business Cessation: The company must cease all business activities.

  9. Director Cooperation: The company’s directors must fully cooperate with the liquidator.

If a company fails to meet these requirements, CVL may not be the appropriate course of action. In such instances, directors are advised to seek professional guidance to identify the most suitable insolvency procedure.

The Basic CVL Process

The basic CVL process is as follows:

  1. Appoint a liquidator: The first step is to appoint a licensed insolvency practitioner to act as the liquidator. The liquidator will be responsible for overseeing the liquidation process and ensuring that the company’s affairs are wound up in a fair and orderly manner.

  2. Hold a directors’ meeting: The directors of the company must then hold a meeting to confirm that the company is insolvent and to decide to liquidate it.

  3. Obtain consent to short notice: The directors must then obtain the consent of the shareholders to hold a quick shareholders’ meeting.

  4. Hold a shareholders’ meeting: The shareholders must then hold a meeting to confirm the choice of liquidator and to agree to the liquidation.

  5. Hold a creditors’ meeting: The liquidator must then hold a meeting to inform the company’s creditors about the liquidation and to get their approval.

  6. Liquidate the company: The liquidator will then sell off the company’s assets and pay off its debts. Any remaining assets will then be distributed to the shareholders.

What are the Advantages and Disadvantages of a CVL?



How Much Does a CVL Cost?

The financial burden of a Creditors’ Voluntary Liquidation (CVL) for a small company typically falls between £4,000 and £6,000, excluding Value Added Tax (VAT). This figure may fluctuate based on the intricacies of the individual case.

It is crucial to bear in mind that expenses incurred during a CVL are typically settled from the company’s assets. Only in exceptional circumstances, when the company’s assets are inadequate to meet the CVL costs, would the directors be held responsible for personal financial contributions.

What is the Timeline of a Voluntary Liquidation?

The average duration of a voluntary liquidation is approximately one year. However, the precise timeframe is contingent upon the complexity of the liquidation and various additional factors.

When a company dissolves, the order in which creditors are paid depends on their claim type.

Secured creditors, who have a legal right to specific company assets, are paid first. Unsecured creditors, who lack a legal claim to specific assets, are paid next, but they may not receive the full amount owed. Shareholders, the company’s owners, are paid last, and they may not receive any money at all.

Payment Order

  1. Secured creditors: These creditors have a legal claim to specific company assets, such as property, plant, and equipment. They are paid first from the proceeds of those assets’ sale.

  2. Preferential creditors: Due to the nature of their claims, these creditors are given priority over unsecured creditors. They include employees for unpaid wages and salaries, the tax authorities for unpaid taxes, and the government for unpaid social security contributions.

  3. Unsecured creditors: These creditors lack a legal claim to specific company assets. They are paid from any remaining assets after secured and preferential creditors have been paid. However, they may not receive the full amount owed.

  4. Shareholders: Shareholders, the company’s owners, are paid last in a liquidation. If there are not enough assets to pay all creditors, they may not receive any money at all.

Creditors Voluntary Liquidation FAQs

The process of creditors’ voluntary liquidation involves the appointment of a liquidator, who will investigate the company’s affairs, sell its assets, and distribute the proceeds to the company’s creditors.

During a CVL, the company’s employees will typically be made redundant, and will be entitled to claim any unpaid wages or redundancy pay from the government’s Redundancy Payments Office.

Company directors face potential liability for wrongful trading or other misconduct that led to the company’s financial woes during a CVL. They may also be obligated to assist the liquidator in investigating the company’s affairs.

In a Creditors’ Voluntary Liquidation (CVL), creditors are prioritized and compensated from the proceeds of asset sales according to that ranking. Secured creditors, such as banks, typically take precedence, followed by unsecured creditors, such as suppliers and employees.

During a CVL, the company’s shareholders will typically receive nothing, as the proceeds of the sale of the company’s assets are used to pay the company’s creditors.


The primary sources for this article are listed below, including the relevant laws and Acts which provide their legal basis.

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  1. Trusted Source – .GOV- Arrange liquidation with your creditors