Creditors’ Voluntary Liquidation (CVL)

A Creditors’ Voluntary Liquidation (CVL) is a formal insolvency process initiated by company directors to close an insolvent company. An insolvent company means a company that can’t pay its debts as they fall due.

CVL involves a structured wind-down of trade and the sale of company assets to repay creditors, all managed by a licensed Insolvency Practitioner. This structured process allows directors to address financial difficulties and settle debts, involving creditors in the decision-making process and ensuring a fair distribution of assets.

Determining if a CVL is the right option for your business involves evaluating your company’s financial situation. If your company is insolvent and unable to pay its debts, a CVL provides a structured way to wind up operations and address creditor claims. It allows directors to resolve financial difficulties while involving creditors proactively. Consulting with an Insolvency Practitioner can help you understand the implications and benefits of CVL for your specific circumstances. Additionally, a CVL can be beneficial if you want to avoid the compulsory liquidation process driven by creditors, as it gives you more control over the liquidation process.

Process:
How CVL works, step by step

Initial Consultation

Consult with one of our qualified Insolvency Practitioners to discuss whether CVL is the right option for your company. During this consultation, our Insolvency Practitioners, with their wealth of experience and knowledge, will review your company’s financial situation, discuss potential alternatives, and fully explain the CVL process. This will give you the confidence that you are in capable hands; our Insolvency Practitioners and support team will guide you through the process and answer any questions you may have.

Ceasing Trade

Our Insolvency Practitioner and expert support team will guide you on how to cease trading; and speak to your creditors, the bank, other lenders, HMRC, and employees on your behalf. We will also notify all stakeholders about the company’s decision to enter CVL and ensure that trading activities are wound down in a structured way to avoid further losses and debt increases.

Preparing for Liquidation

We will work with you to coordinate your company’s entry into CVL, manage essential paperwork, and engage with directors, shareholders, and creditors. This involves preparing a Statement of Affairs, summarising the company’s assets and liabilities, and coordinating and leading virtual meetings of shareholders and creditors to communicate the situation and approve the liquidation (CVL).

Reporting

We’ll prepare a report on behalf of the directors explaining the company’s background, current financial position, reasons leading to the CVL, and the steps directors took to minimise the loss to creditors. This report will be shared with creditors and shareholders

Asset Recovery and Sale

We will help you understand your responsibilities and work on recovering and selling company assets to repay creditors. This involves valuing the assets, marketing them for sale, and distributing the proceeds to creditors in accordance with the legal hierarchy of claims.

Restarting with a new company

Being a director of a company that enters Liquidation (CVL) does not stop you from being a director of another company if you have acted fairly and the reasons for failure were genuine and unavoidable. Often following CVL, directors wish to restart with a new company. If this is the case, our Insolvency Practitioners can help coordinate the sale of assets, brand and intellectual property back to directors (or their new company) in an open, fair and legal way

Finalising Liquidation

Once all the assets are dealt with, we will prepare and circulate an official report to creditors and Companies House to finalise the liquidation. This final report includes a comprehensive account of the liquidation process, detailing how assets were managed and distributed.

Is Creditors’ Voluntary Liquidation the Right Option for Your Business?

Determining if a CVL is the right option for your business involves evaluating your company’s financial situation. If your company is insolvent and unable to pay its debts, a CVL provides a structured way to wind up operations and address creditor claims. It allows directors to proactively resolve financial difficulties while involving creditors. Consulting with an insolvency practitioner like us will help you understand the implications and benefits of CVL for your specific circumstances.

A CVL is particularly suitable for companies that:

Are unable to meet their debts as they fall due.
Have been advised or conclude that there is no viable future trading option.
Wish to avoid being forced into a compulsory liquidation process by creditors via the Courts. This doesn’t reflect well on directors, who have no say or control over timing or how the liquidation process is managed. It also often involves the unexpected freezing of bank accounts.

What Are the Main Responsibilities of a Director During the Process?

Ultimately, our Insolvency Practitioners will guide you through your responsibilities and key decisions leading up to and during the CVL process. You will not be alone; our team will help you take the right steps and make the right decisions.

Leading up to and during the CVL process, directors (with our support and guidance) are responsible for:

Ceasing trading and safeguarding company assets to prevent further financial loss.
Communicating with employees, HMRC, and creditors to inform them of the situation and the intended liquidation.
Providing company information to enable the drafting of an accurate directors’ report and Statement of Affairs.
Assisting the appointed liquidators by answering questions and providing access to company records.

Directors must act in the best interests of creditors, avoiding wrongful trading or preferential payments.

Advantages and Risks of Creditors’ Voluntary Liquidation

Advantages

Structured process: A CVL provides a clear and structured process for dealing with insolvency, ensuring all steps are followed legally and transparently.
Proactive approach: Directors can address financial issues proactively, potentially reducing personal liability and avoiding compulsory liquidation.
Creditor involvement: The process involves creditors, allowing them to have a say in the liquidation and ensuring a fair distribution of assets.
Fresh start: Once the process is complete, directors can start anew without the burden of the company's debts.

Risks

Director investigations: All liquidations, whether CVL or compulsory liquidation, involve a review of the directors’ actions at any point in the three years leading up to liquidation. This ensures that the directors acted reasonably and didn’t take steps or enter transactions that were harmful to the company or its creditors. In our experience, most directors act reasonably and do their best. On the rare occasion a director has been involved in a harmful transaction or activity, they may be called upon to restore, repay or account for what has occurred. They can face being disqualified from being a director for a period of time.
Personal Guarantees: Directors may still need to settle personal guarantees on company debts, where creditors suffer a shortfall after accounting for any possible return from the CVL.

How Long Does a CVL Take?

The initial process of placing a company into CVL can take as little as 10 to 14 days. Once in liquidation, the entire process typically concludes within 7 months to a year, depending on the complexity of asset recovery and creditor claims. Some CVLs may extend longer if additional time is needed to recover company assets. The timeline can be influenced by factors such as the number of creditors, the nature and value of the company’s assets, and any practical or investigative matters that may arise.

What Happens After the Liquidation Process is Completed?

After the liquidation process is completed:

Any remaining assets, after costs, are distributed to creditors based on their creditor class and priority.
Creditors receive a final report explaining the outcome of the liquidation process, any asset recoveries, creditor distributions and any specific matters applicable to the CVL.
The company is formally dissolved and removed from the Companies House register, marking the end of its existence.

Can a Creditor's Voluntary Liquidation be Reversed?

Reversing a CVL is extremely rare. The process can be aborted in the period leading up to the shareholder and creditor meetings to place a company into CVL. However, once formally in liquidation, following shareholder(s) and creditors passing resolutions to commence the process, it is not easy or generally practical to undo.

Your CVL
Questions Answered

Is a creditor's voluntary liquidation bad?

A CVL is not inherently bad; it’s a legal mechanism to deal with a company that cannot pay its debts and when there is no chance of a recovery. It allows directors to manage financial difficulties responsibly and treat creditors fairly. While it signifies financial distress, it also provides a structured way to resolve issues and potentially start anew. The perception of a CVL can vary; in our view, it is a responsible step towards resolving unmanageable debts, a mechanism to ensure orderly and fair asset distribution and provide directors with a fresh start.

Will I be able to be a director again?

After a CVL, directors can become directors of other companies. However, there are exceptions. If the director is found guilty of wrongful trading or other misconduct, they may face disqualification for a specified period, typically between 2 and 15 years. To avoid such repercussions, it’s important to take advice early, cooperate fully with the liquidation process and always act in the best interest of creditors.

What do I do if I can't afford to liquidate a company?

If you can’t afford to liquidate your company:

Seek advice from an insolvency practitioner who offers flexible payment terms for their services.
Consider negotiating with creditors for a Company Voluntary Arrangement (CVA) as an alternative, which would allow for debt restructuring and continued operation.
Ensure you act early to prevent further financial deterioration, as delays can exacerbate the situation.

What will trigger a creditor's voluntary liquidation?

A CVL is typically triggered by:

Inability to pay debts as they fall due.
Pressure from creditors demanding repayment.
Directors’ decision that the company is insolvent and unbale to recover
Where continued trading is likely to worsen the position and expose directors and creditors to greater financial loss.
Following advice from financial or insolvency professionals recommending liquidation as the best course of action.

What is wrongful trading?

Wrongful trading occurs when directors continue to trade while knowing or ought to have known that a company is insolvent and unable to pay its debts, which results in a worse outcome than if trading had ceased sooner. If a court finds that directors have engaged in wrongful trading, they can be held personally liable for the company’s debts from the point they knew insolvency was inevitable. To avoid wrongful trading, directors should seek professional advice and act prudently once they realise the company is insolvent.

What happens to debts after CVL?

After a CVL, the company is dissolved and ceases to exist. Any shortfall on debt cannot be recovered by creditors and are written off. However, personal guarantees made by directors on company debts remain enforceable, and secured creditors may have claims on specific assets.

Testimonials

At an extremely difficult time in my life BABR really put the support net out - Teah I can't express my gratitude, I spent a long period of time in total panic, anxiety ridden fear and sleepless nights ... you really held my hand and helped me through this situation so - thank you. Thanks to everyone there.

Harrison and Matt et al have been spot on from start to finish. Patient, understanding and pleasant. Making an emotional time easier to cope with. Many thanks

I would like to thank everyone at BABR for the quality service received during what were challenging times for us as a business. I found them to be friendly and responsive to our needs, always clear in their instruction and worked to make the entire process as simple and painless as possible. I would recommend BABR to anyone needing their expertise and support in what can be the most challenging time you can face as a business.

I decided to retire from consultancy & to liquidate my sole trader company. My accountants recommended Bailey Ahmad. The advice & support was excellent throughout not least from Sarah Broom who led the process. The explanations of the technical processes were clear & accessible, the advice was first rate, & the communications were excellent. This was all immensely reassuring. It has been a protracted process entirely due to unacceptable delays at HMRC but Sarah has chased them with energy and persistence keeping me briefed on her efforts. I can’t commend them too highly- extremely competent & wholly professional while being warm and friendly to deal with.

The loss of a business through insolvency is devasting to those involved. Building up a business from scratch, putting your heart and soul into making it a success and having high hopes for the future, perhaps passing the business on to a younger generation, can be snatched away, normally by circumstances totally outside of the business owner’s control. The loss of a business is personal. It is therefore so important that any liquidation is handled with this in mind and that business owners going through such a traumatic event feel supported and are treated compassionately. The team at Bailey Ahmad Limited (BABR) tick all boxes. They are professional, compassionate, understanding and supportive. Of course, liquidation is a serious matter and there are formalities to complete, but if a business owner feels supported and not made to feel a total failure, the process does not feel so daunting. I cannot recommend BABR highly enough.

Our client manager Sarah made the whole process simple and transparent. Her explanations of the complexities surrounding affairs were clear and easy to understand. The communication throughout has been great, always keeping me updated and in the loop. I would highly recommend Bailey Ahmed, extremely professional whilst being open and friendly through this process.

Excellent service from BABR in executing our recent voluntary liquidation. Smooth process with clear instructions and great communication throughout. Special mention must go to Sarah Broom who was so professional, friendly and easy to work with. Met with us at the start of the process, guided us through and was simply exceptional.

This was an excellent service from start to finish. My client manager was proactive, communicated regularly, and worked brilliantly with my accountant as well as providing a legal representative recommendation. This made the whole process easy and stress-free for me. I would highly recommend!

A seamless and well-communicated experience using BABR for our recent voluntary liquidation. Initially considered not utilizing business asset disposal tax relief as thought it was going to be a long and tiresome process. However, the initial distribution took less than four months in the end. Would highly recommend this firm and can't thank Sarah Broom enough for her time, knowledge and friendly approach in guiding us through the process.

I was first introduced to BABR some 3 years ago when attempting to wind up two companies in my father's estate. Sarah Broom, their client manager, has been so supportive throughout what was personally a negative experience. Polite, extremely helpful and knowledgeable and an absolute joy to encounter as I felt safe as at all times that the technical side of the process would be handled with care and expertise. I could not recommend them highly enough.

When I retired in 2023, my accountant recommended a Members Voluntary Liquidation (MVL) of my 10-year old business as the most cost-effective way to wind up the company. The first meeting I had with Paul Bailey, one of the directors, immediately established a relationship of trust. His explanation of the process instilled me with confidence in their business. The BABR staff managed the liquidation process in an excellent manner and they clearly communicated the process every step of the way. Sarah Broom is highly competent and managed the whole process extremely well. She was assisted by Molly Dunn and between the two I was always kept in the loop about the progress. They are very knowledgeable about their field of expertise. They provided me with an accurate quotation of the costs from the outset and the liquidation process was completed within 3 months. I can highly recommend the services of BABR.

Thank you so much for all the hard work you and your colleagues carried out on my behalf in winding up my old Company. From the first day I have found that all correspondences were replied to quickly, and I was kept in loop all the way through the process. I would certainly recommend your services to any other organisation going through the same process.

We were recommended to BABR, and after engaging with Sarah, I must say I was very impressed. The process was managed in a highly professional and efficient manner. Sarah was proactive and kept us informed at every stage.

Thank you for all the work you did to wind up the company. You made the whole process simple and painless throughout. At all times you have been professional and pleasant in your dealings with me. You carefully explained all the actions to be taken and how long they would take. You kept me fully informed at every step. I'm very happy to have worked with you.