What’s the difference between a CVA and a voluntary liquidation procedure (CVL), and which is the better choice for your company?

CVA[1]Trusted Source – GOV.UK – Company Voluntary Arrangements stands for company voluntary agreement, which means a structured repayment plan with creditors, for a percentage of the total debt. This is actually a company rescue process, allowing the company to keep trading.

CVL[2]Trusted Source – GOV.UK – Creditors Voluntary Liquidation stands for creditors voluntary liquidation which is the term for a voluntary liquidation procedure; this means directors choose to liquidate to escape mounting creditor pressure.

We’ll explore the key differences between these two insolvency procedures below.


CVA vs. Liquidation – The Aim of the Procedure

Company Voluntary Arrangement – In the case of a Company Voluntary Arrangement, the purpose of the procedure is to save the company and give a potentially viable company the opportunity to trade its way out of trouble. In doing so, it will repay all or a proportion of the money it owes to creditors and return to solvency.

Liquidation – The aim of an insolvent liquidation is to stop the company trading and to ensure no further debts are incurred. The company is closed, the assets are sold and the money raised is used to repay the company’s debts. The staff will also be laid off.

CVA vs. Liquidation – How Does the Procedure Work?

Company Voluntary Arrangement – In a CVA, the directors of the company decide this is a route they wish to take. They then appoint a Licensed Insolvency Practitioner to act as the ‘Nominee’. The Nominee helps the directors create a proposal that stands a good chance of being approved by the company’s creditors. For a CVA to be approved, 75 percent of the company’s creditors (in value of debt) must agree to proposals. Once approved, the CVA will typically last a period of between three and five years, with regular monthly payments made towards the debt.  

One of the biggest differences between the procedures is the role of the directors. In a CVA, the directors retain control of the company throughout the process and are responsible for making sure the monthly payments are made. If a payment is missed, the company could be at risk of being wound up. Therefore, it’s essential to propose a monthly repayment amount the business can afford.

Liquidation – There are three different types of liquidation:

  • Compulsory Liquidation – Where an insolvent company is wound up by a creditor such as a supplier or HMRC because it has not paid its debts.
  • Creditors Voluntary Liquidation (CVL) – A voluntary process instigated by the company directors to wind up a company that cannot pay its debts.
  • Members Voluntary Liquidation (MVL) – A voluntary process instigated by the directors of a solvent company who want to close the company and sell the assets for the benefit of the creditors and shareholders.

The only liquidations we are concerned with are Compulsory Liquidations and Creditors Voluntary Liquidations, as they apply to insolvent companies. In a compulsory liquidation, a liquidator is appointed by a creditor, while in a CVL, the directors choose to appoint the liquidator themselves. However, the process in both procedures is very similar. Once the liquidator has been appointed, they take control of the business and are responsible for closing it down, selling the assets and distributing the proceeds to the creditors.

This kind of distress sale of company assets is likely to realise less than market value, and by the time the liquidator’s fees are taken into account, the eventual returns for the company creditors could be negligible. However, if the company is insolvent has no chance of survival, this is likely to be the best option.     

CVA vs. Liquidation – How Much Protection Does it Provide?

Company Voluntary Arrangements – One of the most powerful aspects of the CVA is the fact that a legal moratorium is created once the CVA is proposed. That has the effect of staying any legal action by creditors which is already in progress and preventing any new legal action from being taken. If the CVA is approved and all the payments are made, this will last for the duration of the arrangement. There will also be no investigation into the conduct of the directors in the period leading up to the CVA.

Liquidation – In the case of liquidation, the Insolvency Practitioner (liquidator) may choose to examine the way the directors acted during and in the lead up to the insolvency, and decide whether further action is required. Potentially, that could lead to a company director being made personally liable for a proportion of the company’s debt and a directorship ban of up to 15 years.  

CVA vs. Liquidation – Which is Right for you?

Company Voluntary Arrangements – It only takes one event to cause enough disruption to your cash-flow to put your business in financial distress. Although it should not be seen as an easy option, a CVA gives your business a second chance, allowing you to continue trading while you pay off your debts. A CVA also means your creditors retain your trade and any debts are repaid either in part or in full. After three to five years the business can be debt free and profitable once again.      

Liquidation – Sometimes creditor pressure becomes so overwhelming or the loss of a key customer is so devastating that directors find it a relief to enter into a Creditors Voluntary Liquidation. Unless personal guarantees have been provided against company debt, this allows the company to be closed with no outstanding debts so you can find a new job or move onto a new business venture. Although members of staff will lose their jobs, they will receive redundancy pay either from the sale of assets or through the National Insurance Fund.

Not sure which is the best option?

If your business is experiencing financial difficulties and you are considering a Company Voluntary Arrangement or Insolvent Liquidation as a potential way out, we can help. Call 0800 074 6757 for no-obligation advice.


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

You can learn more about our standards for producing accurate, unbiased content in our editorial policy here.

  1. Trusted Source – GOV.UK – Company Voluntary Arrangements
  2. Trusted Source – GOV.UK – Creditors Voluntary Liquidation