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Creditors Voluntary Liquidation
What is it and when does your company need it?
If your company can’t pay its debts, Creditors Voluntary Liquidation (CVL) might be the responsible step to take. It’s a process designed for businesses that are unable to meet financial obligations, allowing them to close down voluntarily under professional guidance. You’ll work with a licensed specialist to settle debts as fairly as possible and dissolve the company, avoiding legal repercussions and providing peace of mind for you and your creditors.
Benefits of a CVL
Personal Protection
With CVL, directors typically won’t be held personally liable for business debts, safeguarding personal finances.
Debt Forgiveness
Business debts are settled through the liquidation process, meaning directors can move forward without the weight of past financial obligations.
No Creditor Hassles
The appointed liquidator handles all communication with creditors, freeing directors from challenging conversations and negotiations.
Clean Slate
Directors have the opportunity to start anew, opening the door to new ventures without old debts looming.
Legal Compliance
Directors demonstrate responsible management by proactively addressing insolvency, maintaining their professional integrity.
How much does a CVL Cost?
The market’s average for a standard CVL – Creditor’s Voluntary Liquidation is £4,000.00 + VAT
This is just a standard fee, and the price can differ from case to case.
Things like the number of creditors, the total debt, number of shareholders, asset level etc. can influence the price.
How does it work?
Step 1 - Starting with Expert Help
When your company is in a tight spot financially and can't pay its debts, it's time to talk to an expert. This is where a Licensed Insolvency Practitioner (IP) comes in. They're the pros who'll look over your finances with you and figure out the best path forward. If it turns out that wrapping up the company is the wisest choice, the directors will have a meeting to agree on starting the CVL process with the IP's help.
Step 2 - Getting the Paperwork Ready
Next, the Insolvency Practitioner (IP) will work with you to put together two key documents: the Director's Report and the Statement of Affairs. Think of these as a full financial check-up; they list everything the company owns and owes. It's a bit like gathering all your financial facts to give to the people your company owes money to. This step is all about transparency and setting the stage for what comes next.
Step 3 – Agreeing to Liquidate
It's decision time. The shareholders come together to vote on whether to close the company through liquidation. If most agree, the process moves forward. It's about making sure everyone's on the same page before taking the next step.
Step 4 – Creditors Weigh In
Next up, the creditors get a say. They're informed about the liquidation plan and given a chance to share their thoughts. If there are no major objections, and everything is clear, we move on to wrapping things up in a way that's fair for everyone involved.
Step 5 – Liquidator’s Duties during the Liquidation.
After the liquidator is picked, they start managing the company's wrap-up. Here's what they handle:
-Taking Over: The liquidator steps in, and the directors hand over control.
-Notifying Everyone: They tell all the creditors and official bodies about the liquidation.
-Managing Assets: The liquidator looks at everything the company owns to get the best returns for creditors.
-Checking the Books: They'll go through the company's financial history thoroughly.
-Reporting: Finally, the liquidator reports back on their findings about the company's financial dealings.
Step 6 – Liquidation comes to a close
When all assets have been dealt with, the investigations into the company’s affairs are finalised and any other matters are concluded, the Liquidators will issue their final report to creditors on the liquidation. This process ends with the dissolution of the company.
How long does a CVL take?
A Creditors’ Voluntary Liquidation’s duration can vary from a few months to a couple of years. It depends on the complexity of the case (number of creditors, number of employees to deal with, complexity of investigations into the company’s affairs, assets etc). In our experience the average length of a liquidation is around 1 year.
As for the director’s involvement, the bulk of it will be in the first couple of months of the liquidation.
important things you should know
Questions And Answers about a creditors’ voluntary liquidation (CVL)
There are three tests you can run to see if your company is solvent or insolvent.
Cash Flow Test – A company should be able to pay it’s debt as they fall due. If this is not possible your company may be insolvent.
Balance Sheet Test – If your companies liabilities (Creditors, Loans, Debts) exceed your company assets this means your company is likely to be insolvent.
Legal actions against your company – A major warning sign that your company is insolvent is receiving any letters threatening with legal actions against your company, from creditors. Such legal documents may be: Winding Up Petitions an CCJ – County Court Judgement.
A company can be easily placed into liquidation. The first step is to have a discussion with a Licensed Insolvency Practitioner and determine a course of action. If Liquidation is the best route, the process can be started immediately. The steps for placing a company in liquidation are the following:
Prepare the statement of affairs (SOA) – a document presenting the clear situation of your company, the level of debt, all the creditors, the assets level of the company and the history of your company.
Board meeting – Directors of the Company meet and decide to place the company in liquidation
Members Meeting – The Shareholders also decide that the company should be placed into liquidation
Creditors meeting – the creditors meet and agree that the company should be placed in liquidation
For more details regarding company liquidation click here.
In a creditors voluntary liquidation the cost to place the company into liquidation may be paid from assets if sufficient.
Liquidators fees post appointment can only be drawn from asset recoveries.
Directors’ duties cease at the date of liquidation, although the director’s full ongoing co-operation and assistance is required by the Liquidator. The company’s directors must:
• Give the Liquidator information about the company’s affairs
• Provide details of its assets and liabilities
• Preserve and hand over the company’s assets to the Liquidator; and
• Preserve and hand over the company’s books, records, bank statements, insurance policies and other papers relating to its assets and liabilities.
The liquidator, administrative receiver, administrator or Official Receiver has a duty to send the Secretary of State for Business, Enterprise and Regulatory Reform, a report on the conduct of all directors who were in office in the last 3 years of the company’s trading. The Secretary of State has to decide whether it is in the public interest to seek a disqualification order against a director.
Examples of the most commonly reported conduct are:
Continuing the company’s trading when the company was insolvent;
Failing to keep proper accounting records;
Failing to prepare and file accounts or make returns to Companies House; and
Failing to send in returns or pay to the Crown any tax that is due.
The benefit of a limited company provides the director with protection against company debts.
However please contact one of our insolvency practitioners if you have signed a Personal Guarantee over a debt of the company.
Having a limited liability company means that the directors have little risk (or limited liability) if the company fails, as long as they have acted properly and acted in time.
There are few instances where the Directors are liable such as wrongful trading.
Each insolvency case is different and the only way to know for sure is to speak directly with a Licensed Insolvency Practitioner.
Yes, it is possible for a director to set up a new company although there may be some restrictions put in place by HM Revenue & Customs
We will provide the relevant documentation to place the Company into liquidation on an online platform for you to review and sign the documents.
Independent valuation agents will usually be instructed pre appointment to value, market and sell the Company’s assets. Should the Director wish to make an offer for the Company’s assets, it will be considered and accepted dependent on any other offers received. The Agents will try to sell the assets for the most advantageous offer. In many cases, it is the Directors who are interested in acquiring the Company’s assets.
Any correspondence in respect of the Company should be sent to the Liquidators and their team to be reviewed and dealt with. They will contact all relevant parties to inform them the Company is now in liquidation, to complete a proof of debt (if not done already) and to ask to update their records with the Company’s new details.
As a director you have certain fiduciary duties. As such, you need to make sure you follow the law and not prioritise or prefer your own interests over the Company’s creditors. Dissipating the Company’s assets in order to settle the your own debt might result in the Joint Liquidators asking for the assets to be returned to the Company or repayments to be made towards the liquidation for a fair treatment of the body of creditors.
Usually, the Company’s change of address will be done on appointment by the Liquidators and their team. Should you receive any correspondence for the Company, please forward it to the Liquidators to be reviewed and dealt with.
As a director you have certain fiduciary duties. As such, you need to make sure you follow the law and not prioritise or prefer your own interests over the Company’s creditors. Dissipating the Company’s assets in order to settle the your own debt might result in the Joint Liquidators asking for the assets to be returned to the Company or repayments to be made towards the liquidation for a fair treatment of the body of creditors.
In the pre appointment stage, we will request the Company’s directors and management for a list of all current creditors, including any potential unpaid salaries or arrears owed to employees. Please contact the Insolvency Practitioners and their team to assist you with your claim. Usually, your claim will be reviewed and submitted to the Redundancy Payments Office. For more details on redundancy, please see Factsheet: what to do when you’ve been made redundant – GOV.UK (www.gov.uk)
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