Creditors Voluntary Liquidation CVL

Creditors Voluntary Liquidation CVL Written by John A Waller. Consultant. Updated June 18th, 2024.

Understanding a Creditors’ Voluntary Liquidation CVL

When a limited company is insolvent?

  • Its debts are greater than its assets, or
  • cannot pay its bills as and when they fall due.

Company directors must remain alert to the above to enable directors to form a view about the business viability. Can the company benefit from a turnaround intervention or cease and enter a CVL process?

Company Directors can choose from three types of liquidation to close their limited company-

  • creditors’ voluntary liquidation – your company cannot pay its debts, and you involve the creditors in the process.
  • compulsory liquidation – is when your company cannot pay its debts and you apply to the courts to liquidate it, or you have received a winding-up order.
  • Members’ voluntary liquidation MVL – is when your company can pay its debts, but you want to close them.

Who can put a company into liquidation?

A CVL is initiated voluntarily by a company director.

Once the company’s insolvency is acknowledged, the directors select a licensed Insolvency Practitioner(IP) to carry out the CVL process.

The primary duties of the appointed liquidator are:

  • realising company assets and
  • ensuring the company is wound down orderly per the Insolvency Act 1986.

What happens during liquidation?

Company assets are sold during the process to enable distributions to creditors with outstanding proven debts/claims. The process involves the dissolution of the company, meaning the company ceases to be a legal entity.

The liquidation of a limited company is carried out through voluntary or involuntary process.

An involuntary process is referred to as a compulsory liquidation.

A voluntary process is called a Creditors’ Voluntary Liquidation (CVL).

Directors’ responsibilities in insolvency

A CVL is a voluntary insolvency process. However, in many cases, directors find themselves in a situation where compulsory liquidation is the only option.
Directors of an insolvent company have a legal responsibility to protect creditors’ interests. They have a clear duty between creditors and shareholders. Failure to do so can result in claims of wrongful trading, fines, personal responsibility for the company’s debt, and a directors’ ban of up to 15 years.

Once directors become aware that their company is insolvent, their creditors’ interests are prioritised over theirs and shareholders’. Rather than wait for a creditor to wind up their company and enter a compulsory liquidation, directors are usually better off opting for voluntary liquidation, which shows they are acting responsibly as directors towards their company’s creditors and employees.

A Creditors Voluntary Liquidation CVL

The liquidation of an insolvent limited company.

AN IP at HBG Advisory can act as a company’s liquidator, assist directors with the shareholders, and commence the process.

Importantly, company directors must seek advice early to understand their responsibilities. The directors of an insolvent company must minimise creditor losses. Not doing so could make company directors liable.

A CVL’s advantage is the power to select the liquidator, which is not the case in a compulsory liquidation. Once appointed, the liquidator sells company assets to facilitate distribution to creditors.

I need to liquidate my limited company.

A CVL is a legal voluntary insolvency process for companies. The directors advise the shareholders that the company is insolvent and no longer viable. They need shareholder approval to appoint a Liquidator (licensed Insolvency Practitioner). A meeting of the company’s creditors is called while giving 14 days’ notice. Creditors vote to select the nominated liquidator. The meeting is held virtually unless 10% of the creditors, by a value of 10%, vote to meet in person.

Once appointed, the Liquidator then:

  • Assumes responsibility for the CVL process;
  • Realises the assets of the Company;
  • Pays creditors of the Company in order of priority;
  • Terminate employees’ employment with the Company;
  • And close the company down, then remove it from the registrar at companies house.

This is the most common form of liquidation in England and Wales for insolvent limited companies and terminates the limited company’s operations.

Company directors need clear direction on how to liquidate a company from an IP, as found with the team at HBG Advisory.

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Advantages and Disadvantages of CVL

Advantages-

  • Directors have more control than in compulsory liquidation;
  • Prompt relief from pressure from creditors;
  • Decreased chance of wrongful trading and directors ban;
  • Option to buy the assets back.

Disadvantages

  • Overdrawn director’s loans require repayment;
  • All employees and directors were made redundant;
  • company assets sold;
  • Liquidator investigates your term as a director on how you conducted yourself;
  • Personal Guarantees crystallised for repayment;
  • Shareholders may have to repay illegal dividends (not paid out of profit);
  • Insolvency advertised in the Gazette;
  • Shareholders often remain unpaid.

Company Director redundancy

Appointing an IP to liquidate your company has a cost. If the company has no assets to pay for the process, the liquidator will look to the directors to pay their fee. However, directors may pay the fee if they receive their remuneration as company employees and through the company’s PAYE scheme. In these scenarios, company directors remain eligible to claim redundancy once the company enters an insolvent liquidation with the other employees. So, if directors qualify? It enables them to proceed with voluntarily, rather than a compulsory liquidation.

Can a court order liquidate a company?
A court order can force a company into compulsory liquidation if a company is insolvent. However, a voluntary process is called a CVL. Who can put a company into liquidation? A CVL is a director-initiated insolvency process that an IP must administer.

Voluntary Creditors Liquidation CVL?

Often, people refer to ‘Creditors Voluntary Liquidation‘ as ‘a Voluntary Creditors Liquidation.

Why would a director voluntarily liquidate their Company?

Directors seek the help of an IP if their company is financially suffering. So if the company has-

What happens in a CVL?

Stage 1. Seek a reliable, experienced IP, as found in HBG Advisory;

Stage 2. Collate company asset details for valuation by an independent valuer;

Stage 3. Collate liabilities of the company, ensuring all details of the creditor, along with amounts due, are included;

Stage 4. Handover all books, computer accounting records and statutory books to HBG Advisory for Liquidation;

Stage 5. Hold creditors’ meetings chaired by a former director with creditors online unless a physical meeting is required. (See above);

The former directors no longer held office once the liquidator was voted into office. However, they may be required to assist the liquidator in their statutory duties.

CVL remains a cheaper process than a Company Administration. However, opting for Company Administration protects the business from creditors while it sorts itself out.

What is the difference between Voluntary Liquidation by members and creditors?

Voluntary liquidation by members, known as Members Voluntary liquidation MVL, refers to a solvent company that pays all company debts within 12 months of the liquidation appointment.

HBG Advisory provides clients with Fixed Price MVl Options

If a CVL is due, the company cannot pay its debts as and when due, or its liabilities are more significant than its assets. So, the creditors of the company vote to appoint a liquidator.

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Creditors Voluntary Liquidation

What is a Creditor of a Company?

Company creditors. – Companies and individuals who have provided goods or services to the company and therefore owed money. Creditors include HMRC (Crown Preference), company bankers (usually secured if owed money) and other finance suppliers, including leases, rental purchases and landlords.

What is a Trade Creditor?

Trade creditors. – Usually, it is a supplier of goods for resale or production materials for the company. So, once in liquidation, they are classified as unsecured creditors unless they have a guarantee of security in the event of a default.

What happens to unpaid creditors?

Once appointed, the IP acts as a liquidator, dealing with all unpaid creditors and ensuring the realisation of the company’s assets. Therefore, the liquidator can distribute available funds once creditors have proven the debt with the liquidator. Payment is given priority according to the creditor’s class.

The creditors of the company fall into the following category for payment by the liquidator: –

  1. Secured creditors with a fixed charge – Asset-based lenders (Machinery, Planes & Cars) and Banks (Buildings, Land).
  2. Preferential creditors – Company employees with outstanding arrears of wages and holiday pay.
  3. Secured creditors with a floating charge – Creditors holding a form of security over moveable assets like materials, stock, office furniture and fixings.
  4. Unsecured creditors of the company – Trade creditors without any form of security (Suppliers) & finance agreements unsecured (Credit Cards & loans).
  5. The company’s shareholders remain paid last once all other creditors have been paid in full.
  6. Usually, shareholders receive no payment in a CVL.

Can creditors object to voluntary liquidation?

Even though there is no automatic stay (or halt) on legal proceedings against a company in voluntary winding up, a liquidator or another contributory or creditor may petition the court to stop proceedings.

Limited companies and limited liability

Limited companies are separate legal entities. Therefore, they operate individual finances for shareholders. It, hence, ensures that shareholders remain independent and do not have personal liability for company losses, debts or legal claims against the Limited Company.

So, limited liability within the structure of a limited company remains the main reason for its operation, along with tax benefits. Limited companies safeguard company shareholders, and their only exposure is to lose the value of the initially invested shares.

Insolvency Planning for a CVL

How do I liquidate my limited company?

However, the company’s directors must consider the process. Pre-liquidation solvency planning helps understand and plan what is necessary. Ensure that a professional review enables directors to maintain initial control.

Opting to take the opportunity to meet with an IP. Company directors can avoid trading while insolvent.

Therefore, the original report must cover-

  • Compile an enquiry pack;
  • Critique the company’s previous accounts filed going back at least five years;
  • Audit charges registered over company assets;
  • Measure former financial forecasts against actual company customers and its position in the market; Company’s critical processes adopted and improvements needed;
  • Directors retirement strategy;
  • Agree on company director’s loan accounts;
  • Ensure all options are available.

Therefore, conducting a pre-insolvency review can open up other options for directors.

Can I Liquidate My Company?

No. Only a licensed insolvency practitioner takes the appointment.

Why may I need a validation order?

When a company is liquidated, its assets are realised to pay off its debts. Any money left goes to shareholders. You’ll need a validation order to access your company’s bank account.

If this money is not shared between shareholders until the company is removed from the register, it will go to the state.

You must restore your company to claim money after its removal from the register.

When is a””CV”” suitable for use?

To close an insolvent company while providing quick procedure, and may commence in ten working days.

How Long Is The Procedure?

Dependent on the realisation of company assets?

For further help on how to liquidate my company, please get in touch with HBG Advisory on-

Free Confidential Advice
We don’t need personal or company details to answer initial questions on your situation: You can book a free virtual meeting or call us on 0800 612 5448.

What is A Creditor of a Company?

Company creditors. – Companies and individuals owed money by the company. Creditors usually include HMRC (Crown Preference), company bankers (usually secured if owed money) and other finance suppliers, including leases, rental purchases and landlords.

What is A Trade Creditor?

Trade creditors usually supply goods for resale or production materials for the company. So, once in liquidation, they are classified as unsecured creditors unless they have a guarantee of security in the event of a default.

What happens to unpaid creditors in a liquidation?

Once appointed, acting as liquidator, the IP deals with all unpaid creditors and ensures the company’s assets are realised. This, therefore, allows the liquidator to distribute available funds as soon as creditors have proven the debt with the liquidator. Payment is given priority according to the creditor’s class.

The creditors of the company fall into the following category for payment by the liquidator: –

  1. Secured creditors with a fixed charge – Asset-based lenders (Machinery, Planes & Cars) and Banks (Buildings, Land).
  2. Preferential creditors – Company employees with outstanding arrears of wages and holiday pay.
  3. Secured creditors with a floating charge – Creditors holding a form of security over moveable assets like materials, stock, office furniture and fixings.
  4. Unsecured creditors of the company – Trade creditors without any form of security (Suppliers) & finance agreements unsecured (Credit Cards & loans).
  5. The company’s shareholders remain paid last once all other creditors have been paid in full. Usually, shareholders receive no payment in a CVL.

Limited companies and limited liability

Limited companies are separate legal entities. Therefore, they operate individual finances for shareholders. It, therefore, ensures that shareholders remain independent and do not have personal liability for company losses, debts or legal claims against the Limited Company.

So, limited liability within the structure of a limited company remains the main reason for its operation, along with tax benefits. Limited companies safeguard company shareholders. However, their only risk is losing value in the initially invested shares.

Insolvency Planning for a Creditor’s Voluntary Liquidation CVL.

How do I liquidate my limited company?

The company’s directors must consider liquidation. Pre-liquidation solvency planning helps understand and plan what is necessary. Ensure that a professional review enables directors to maintain initial control.

By meeting with an IP. Directors can avoid trading while insolvent.

Therefore, the original report must cover-

  • Compile an enquiry pack;
  • Critique the Company’s previous accounts filed going back at least five years;
  • Audit charges registered over company assets;
  • Measure former financial forecasts against actual;
  • Company’s customers and its position in the market;
  • Company’s critical processes adopted and improvements needed;
  • Company Directors retirement strategy;
  • Agree on company director’s loan accounts;
  • Ensure all options are available.

Therefore, conducting a pre-insolvency review can open up other options than a Creditors Voluntary Liquidation CVL.

Can I perform a Creditors Voluntary Liquidation CVL for my company?

No. Only a licensed insolvency practitioner takes the appointment.

Can’t pay VAT Options?

Can I, therefore, liquidate?

Therefore, seeking an appointment with a licensed insolvency lawyer is important. They will establish the company’s debt before advising liquidation.

Other options exist, such as negotiating a time to pay with HMRC, a Company Voluntary Arrangement (CVA) explained, and a Company Administration.

When is a “Creditors Voluntary Liquidation CVL” suitable for use?

A CVL is suitable for closing an insolvent company. Therefore, putting a limited company in a CVL is a quick procedure that may commence in ten working days.

How Long Is The Procedure For A Creditor’s Voluntary Liquidation CVL?

Dependent on the realisation of company assets?

For further help on how to liquidate your company, Please contact HBG Advisory at:

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