Creditors' voluntary liquidation (CVL)

What is a creditors' voluntary liquidation?

A creditors' voluntary liquidation (CVL) is the formal process by which the directors of an insolvent company choose to stop trading and place the company into liquidation, appointing a licensed insolvency practitioner to realise its assets for the benefit of creditors. It is voluntary because the directors start it, and it is for creditors because they are the people the process protects.

A CVL is the most common way to close a limited company that cannot pay its debts. It ends the company in an orderly way, deals with creditors fairly under the Insolvency Act 1986, and draws a line under the situation so directors can move on. It is one of several ways of closing a company, and the right one when there is no realistic future for the business.

How do you know your company needs a liquidation?

A company is insolvent, and a candidate for liquidation, when it fails either of two legal tests: the cash-flow test, meaning it cannot pay its debts as they fall due, or the balance-sheet test, meaning its liabilities are greater than its assets. Meeting either test is the trigger to take advice.

In practice the warning signs are familiar to most directors who reach this point.

• Pressure from HMRC over unpaid VAT, PAYE or corporation tax, or a time-to-pay arrangement that has fallen behind.
• An unpayable Bounce Back Loan or other borrowing the company cannot service.
• Final demands, statutory demands or a threatened winding-up petition from a creditor.
• Wages, suppliers or rent that can no longer be paid on time.
• Relying on new work to pay old debts, with no realistic way to catch up.

How does the creditors voluntary liquidation process work?

A CVL follows a set statutory path from the boardroom to dissolution, and a licensed insolvency practitioner guides the company through every step. The company can nominate the insolvency practitioner it wants as liquidator, although creditors have the final say on the appointment.

The main stages are as follows.

• Board decision. The directors resolve that the company is insolvent and should stop trading and enter liquidation.
• Statement of Affairs. The insolvency practitioner helps prepare a Statement of Affairs setting out the company assets and what is owed to each creditor.
• Shareholders and creditors decide. Shareholders pass a winding-up resolution, then creditors approve the appointment of the liquidator through a decision procedure such as deemed consent or a virtual meeting.
• Assets realised. The liquidator sells the company assets and distributes the proceeds to creditors in the statutory order of priority.
• Directors' conduct reviewed. The liquidator investigates and reports on the conduct of the directors in the period before liquidation, as required by Statement of Insolvency Practice 2.
• Dissolution. Once the work is complete the company is struck off the register and ceases to exist.

How much does a creditors voluntary liquidation cost?

A creditors' voluntary liquidation typically costs from around £4,000 to £7,000 plus VAT for a straightforward small company, with the exact figure depending on the number of creditors, the assets to realise and the complexity of the case. These are indicative ranges to confirm at a free consultation, not fixed prices, because every company is different.

Directors are often relieved to learn that the cost does not usually come out of their own pocket. The liquidator's fees are normally paid from the company assets as they are realised. Where there are few assets, the fees can frequently be met from the directors' own statutory redundancy entitlement, which many directors are able to claim (see below).

Figures are indicative and confirmed in writing before you commit. Ask us for a fixed quote for your company.

What happens to directors in a CVL?

In a CVL the directors hand control of the company to the liquidator, and their conduct in the period before liquidation is reviewed and reported on under Statement of Insolvency Practice 2. For directors who have acted properly this is a routine step, not something to fear.

Three points matter most to directors personally.

• Redundancy and other claims. Many directors are employees of their own company and can claim statutory redundancy pay, notice pay and unpaid wages from the government, which often more than covers the cost of the liquidation.
• Overdrawn director's loan account. If you owe the company money through an overdrawn loan account, the liquidator must try to recover it as an asset. We explain how this is dealt with before you start.
• Personal guarantees. Any debts you personally guaranteed, such as some bank lending or leases, remain your responsibility after the company closes.
• Wrongful trading. Taking advice early and stopping trading at the right time is the best protection against allegations of wrongful trading or personal liability.

What happens to employees when a company is liquidated?

When a company enters liquidation its employees are usually made redundant, and they can claim redundancy pay, unpaid wages, holiday pay and notice pay from the Redundancy Payments Service, funded by the National Insurance Fund. Employees rank as preferential creditors for certain amounts owed to them.

The liquidator provides the information employees need to make their claims and answers their questions, which takes a difficult job off the directors at a hard time.

How long does a creditors voluntary liquidation take?

The company can normally be placed into liquidation within one to two weeks of instructing the insolvency practitioner, and it stops trading and gains protection from creditor action from that point. Preparing the paperwork and giving creditors the required notice is what sets the timetable.

The liquidation itself then runs for as long as it takes to realise the assets, agree creditor claims and complete the investigation, which is commonly several months to a year or more for a small company. Directors are usually free of day-to-day pressure as soon as the liquidator is appointed.

How does a CVL compare with the other options?

A CVL is the right procedure when a company is insolvent and has no realistic future, but it is one of five main options and the best choice depends on whether the business is viable and whether it is solvent. The table below sets out where each one fits.

Not sure which applies to your company? Call us and we will tell you honestly.

Why choose NTF for a creditors voluntary liquidation?

NTF Corporate Solutions is a boutique insolvency practice whose creditors voluntary liquidations are carried out by named practitioners, James Kaye and Nick Morgan, who are licensed by the Institute of Chartered Accountants in England and Wales. You deal with an experienced, named practitioner directly, from the first call through to the company’s dissolution.

As part of the NTF group, we have helped company directors since 2009, we explain everything in plain English, and the first conversation is free, confidential and without obligation. If a CVL is the right step for your company, we will guide you through it calmly from start to finish.