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What is a Creditors’ Voluntary Liquidation (CVL) and How Could it Help the Business?

CVL Overview

Creditors' Voluntary Liquidation Overview

Creditors’ Voluntary Liquidation Overview

A creditors’ voluntary liquidation is a type of liquidation that is initiated by the directors of a limited company, following a shareholder resolution. This type of voluntary liquidation allows the directors time to get the limited company’s affairs in order, before closing and working within the board timelines.

We are addressing a creditors’ voluntary liquidation in an overview page as it is the most common and appropriate way to close an insolvent company within the UK.

Creditors’ Voluntary Liquidation Explained

A creditors’ voluntary liquidation (CVL) is a process designed to allow an insolvent company to close voluntarily. The decision to liquidate is made by a board resolution, but instigated by the director(s). If your limited company’s liabilities outweigh its assets, or the company cannot pay its bills when they fall due, then this solution could be the right choice. Either way, if you are considering voluntary liquidation then as the director you are likely to be under pressure to pay bills that your company is struggling with. Naturally, each creditor wants their bill paying first. So what happens if you cannot afford to pay them?

A limited company becomes insolvent when it can no longer pay its bills when due, or when its liabilities, including contingent liabilities such as redundancy payments, outweigh the company’s assets. This is a critical point in the lifespan of a company as it denotes when the directors’ responsibilities change from the shareholders to the creditors. It also means that the directors need to be extremely careful when considering whether to continue trading or not. Any director who knows that the company is insolvent yet makes the decision to continue trading, and in doing so increases the debts of the company, can be made liable for the company debts.

When Should You Consider a CVL?

There are a number of business scenarios where a CVL may be the only solution, or part of the solution. Here a small number:

  • Historic debts may have accumulated but the core of the business may be viable;
  • HMRC are chasing taxes owed and refusing to accept further time-to-pay arrangements;
  • Your company is insolvent and no longer appears to be viable, even if restructured;
  • There has been a decline in the market for your company’s services and products;
  • The directors are not willing to provide further personal funding to keep the company afloat;
  • You would like to use a creditors’ voluntary liquidation as part of the restructuring of a group.

Consequences of a CVL

After establishing that your company is insolvent, the inevitable next question is ‘Do I want to continue to trade or should I shut-up-shop?’. Either way, a voluntary creditors’ liquidation may well provide you with the ideal solution for your debt problems. Whilst liquidation should always be considered as the last resort, if managed carefully it can provide a chance for a new beginning.

A limited company is a legal entity in its own right and so the debts belong to the company. Therefore, a CVL allows you to liquidate the company and in doing so, the company debts are liquidated along with the company itself. There are exceptions to this rule, such as debts that are personally guaranteed. This is due to the limited liability status of your company and you should be wary of closing the company simply to avoid paying creditors, as a creditors’ voluntary liquidation should only be seen as a last resort.

The fact that the debts belong to the limited company as a legal entity in its own right means that the directors can start a new limited company and their personal credit rating should not be affected.

If you are considering voluntary creditors’ liquidation as an option please contact us immediately, as without guidance this route can be similar to making your way through a legal minefield. It can be difficult to know who to trust online, so if you would like to speak with other clients that we have helped please just ask, or you can read our testimonials page.

Life After a Creditors’ Voluntary Liquidation?

With a CVL the directors can close the limited company without the permission of the creditors and most directors who are forced to consider this option will, in hindsight, tell you that this allowed them to take back control of the company’s destiny. Although the decision to liquidate the limited company is never an easy one to make, it is better being made by the directors and shareholders than having the decision forced upon them.

Contact Us for CVL Advice

Prefer to talk? To speak with one of the team about a creditors’ voluntary liquidation and how it could possibly solve your situation call us on 08000 746 757; or use the Live Support feature at the bottom-right of this page.

See also:

Written by: Mike Smith


What is a CVA?

CVA, otherwise known as a company voluntary arrangement, allows you to protect your insolvent company against legal action such as a winding up threat, as with administration, but with the purpose of creating a legally binding payment plan with your company’s creditors. The cva is tailored around your company’s cash-flow so that your company’s debts can be repaid, either in part, or in full over a maximum of five years. A cva is initiated by you (the director), not the creditors or shareholders and must provide a better return for creditors than company liquidation.

When used correctly, a cva can provide a perfect tool to renegotiate troublesome trade agreements whilst allowing you to trade on through a financially challenging period. This solution should only be considered if you believe your company is viable, but needs some help to trade through.

What is a CVL?

A CVL is also known as a creditors voluntary liquidationIt is a solution that allows you to close your insolvent company with or without the permission of creditors and generally it allows the company to write off unsecured debts. This type of liquidation is initiated by you (the director), not the creditors as the name may lead you to believe. Choosing the right insolvency practitioner can be critical when considering liquidation. Insolvency practitioners will usually specialise in one area or another so lea that way when selecting a potential solution. There may be an alternative to a creditor voluntary liquidation. Ask to speak with previous clients as testament to their services before committing to any insolvency practitioner to carry out a creditors’ voluntary liquidation. It is also worth noting that you should be careful about what is said to a potential liquidator as they act for creditors not you, the director.

What is a Pre-Pack?

pre-pack can refer to pre-pack administration or pre-pack liquidation, either way, for the insolvent company the solution involves having a future buyer lined up to purchase the more profitable parts of the business, whilst leaving the debts behind. It is important to obtain specialist insolvency help immediately if you think this may be a viable solution for your company as strict procedures must be followed if you, as a director are a ‘connected person‘, are considering purchasing your company’s assets. Nevertheless, if your business is generating revenue producing contracts, has sizable assets or properties, but they are under threat from serious litigation, winding up, or angry creditors; a pre-pack administration can provide a very powerful legal solution for your company.

What is administration?

Administration is a very powerful legal tool that can be used to; first, stop legal action against your insolvent company and then:
Get a better return for the creditors than would be obtained via an immediate liquidation, or rescue your company from creditor threats of serious legal action (statutory demand) and or compulsory liquidation (winding up), or serious financial difficulty, as it provides you with more time allowing for a rescue strategy to be put in place for everyone’s benefit.

What is Insolvency?

There are two key tests/questions that apply to companies when defining whether it is insolvent or not and they are:

  1. The cash-flow test: Can the company pay its bills when they are due?

If the answer is NO, then your company is likely to be insolvent and you should seek advice.

  1. The balance sheet test: Do your company’s liabilities, contingent and otherwise, outweigh the company’s assets?

If the answer is YES, then your company is likely to be insolvent and you should seek advice.

Is this the end?

No. Insolvency does not have to spell the end for your business as there are a number of tools that we can use to secure both your future and/or your company’s future whilst protecting you fully and minimising any potential risks. It is critical to obtain insolvency advice as soon as you are aware your company is insolvent as you may be trading wrongfully. In addition the longer you continue to trade whilst insolvent your options are likely to reduce in number.

Directors Loan Advice?

Around 70% of directors have a problem with an overdrawn directors loan account at some stage and in the majority of cases we can help.  Most commonly, the director seeks advice from an accountant who tells him/her to take a minimum salary in order to keep national insurance and tax at the lowest levels and to then take dividends to supplement their income. This then causes an unpaid debt which is owed to the company. This is very acceptable tax advice until something goes wrong which could be a sharp, unexpected drop in revenues for whatever reason or a threat of a winding up petition from HMRC.The directors then become debtors (someone who owes money) to the company and any liquidator, has a duty to pursue the director to the point of bankruptcy, if the debt cannot be repaid.

Help With Tax Debts

Around 70% of our work involves HMRC in one way or another, including providing advice on assets being seized, distraint warrantswinding up petitions, negotiated settlements, time to pay arrangements, field officer visits, compliance team visits and more. HMRC are responsible for more winding up petitions than any other organisation so always act swiftly if threatened with a ‘statutory demand‘, ‘legal action’ or ‘winding up’.


What do you charge?

If your case involves administration, company voluntary arrangement (cva) or liquidation you will never pay any fees to us.  When an insolvency solution is required such as a cva, administration or liquidation – we get paid for all of these by completing the field work for the insolvency practitioners. This relationship benefits you in more than one way: As you may already know, once an insolvency practitioner is engaged by your company they are duty bound to work for the creditors. So once engaged, an insolvency practitioner cannot address any potential personal implications that may be directly caused by the insolvency process as it would be a direct conflict of interests for them to do so. Jameson Smith & Co puts your protection first, whilst working with the insolvency practitioners so you have full peace of mind.

Any insolvency procedure can be quite daunting even for the most confident director but we are with you every step of the way. Company insolvency is a very regulated area and it is very easy to make simple mistakes that can cost the director dear personally. It makes sense to have someone on your side throughout the process who has the experience to guide your hand.

The principle s exactly the same for administration and company voluntary arrangements – we do not charge for advice.

Personal Guarantee?

What is a personal guarantee?

A directors’ personal guarantee is essentially a promissory note to pay an organisation regardless of your company failing or going into liquidation. At some stage you may have signed an agreement with the bank or another trade creditor, making you personally liable for a specific debt. Once you realise that your company is heading towards insolvency you should seek advice on how to tackle this situation immediately if you are in any doubt about what to do.

A director cannot simply pay off personal guarantees if the company is insolvent and likely to end in insolvent liquidation. Should the company be forced into compulsory liquidation the official receiver, or indeed any liquidator will check to see if you have shown ‘preference’ and paid off personal guarantees. To do so could be wrongful trading.

Banks will often support personal guarantees with a charge on the family home and, or a debenture usually a fixed and, or floating on the company assets. Be aware by giving a charge on company assets affords the bank special ‘secured creditor’ rights which can mean the closure of the company on their terms and when they wish. Often terms and conditions not being met is the sole reason for often closing decent companies.

The best time to address a personal guarantee is before you close the company not afterwards so if you are thinking of closing your insolvent company seek help now.

We specialise in helping directors address their personal guarantees and providing solutions to allow the directors to exit the situation in the best financial shape possible.

Read our page on directors’ personal guarantees for more information on how we can help you.

Winding up Petition?

What is a winding up petition?

winding up petition is the application for a forced/compulsory liquidation of a limited company or partnership. This is usually initiated by a creditor (person/business that your company owes money to). Winding up petitions should never be ignored. There can be serious implications if communication with the relevant creditor or immediate action is neglected at this stage. It is critical for the director/s to act swiftly and even at this stage the business and or company may be saved.

The company being ‘wound up’ will be investigated by the Official Receiver (Except Scotland). The director’s actions or lack of action is specifically scrutinised by the Official Receiver and evidence of wrongful trading will be investigated.

The director of a company that is forced into company liquidation statistically is more likely to be subject to company director disqualification (CDD). The Official Receiver (Except Scotland) main aim though is to get the best return for the company creditors.

Be aware it is very rarely in the interests of the director to allow themselves to be wound up due to the lack of control and risks to director/s. You must seek professional insolvency help immediately. Your accountant is unlikely to be able to advise accurately and a wrong decision at this stage can be fatal for the insolvent company.

In the majority of cases provided we are contacted earlier enough before the hearing date we can usually rescue the company and or business. The solution may be a company voluntary arrangement, creditor voluntary liquidation, company administration or negotiations with the creditors.

Be aware HMRC are responsible for more winding up petitions than everyone else put together.

Written by: Mike Smith


Statutory Demand?

What is a statutory demand?

statutory demand is a documented written request, usually sent from a creditor for payment of a debt that is owed. You would have 18 days to negotiate a settlement or ask the court to set-aside (dismiss) the demand. If there is no settlement agreed or the debt is not contested within 18 days from receiving the statutory demand you are given a further 3 days to pay in full. This is a very serious documented demand and should not be ignored in any circumstances. After the 21 day period has lapsed and if there is no response to the document, the creditor can then petition to court for a winding up petition of the company for a debt as little as £750 though this is currently under review at the time of writing.

Technically the statutory demand process was created with an individual in mind and no actual different process is legally recognised for a company. The statutory demand must be served correctly and proof of service is essential for the statutory demand to be successful. Provided the statutory demand is served at the company’s registered office; by registered letter and signed for the demand should be accepted as being served correctly.


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