If your company can no longer pay its debts, a Creditors’ Voluntary Liquidation (CVL) can be the most straightforward and responsible way to bring things to a close.
A CVL allows directors of an insolvent limited company to take control of the closure process, appoint a licensed insolvency practitioner, deal properly with creditors, and bring the company to an orderly end. For many directors, it is also the quickest way to stop creditor pressure and avoid the risks that come with delaying action.
This guide explains what a CVL is, when it is used, how the process works, and what it means for you, your employees, and your creditors. It is written for directors who need clear answers, not legal jargon.
What Is a Creditors’ Voluntary Liquidation?
A Creditors’ Voluntary Liquidation is a formal insolvency procedure used to close a limited company that is insolvent. It is called “voluntary” because the decision is made by the company’s directors and shareholders, rather than being forced by a creditor through the courts.
CVL Explained in Plain English
In simple terms, a CVL means:
- Your company cannot afford to carry on trading
- You accept it cannot repay what it owes
- You appoint a licensed insolvency practitioner to wind the company up properly
Once the liquidator is appointed:
- The company stops trading (in most cases)
- Creditors are formally notified
- Company assets are dealt with
- The company is eventually dissolved
A CVL is specifically designed for companies in debt. It is different from a Members’ Voluntary Liquidation (MVL), which is only available to solvent companies.
Why Choose a CVL Instead of Waiting?
Many directors worry that starting a liquidation will make things worse. In reality, the opposite is often true.
Directors usually choose a CVL because it:
- Stops creditor pressure and legal threats
- Prevents the situation escalating into compulsory liquidation
- Shows you are acting responsibly once insolvency is clear
- Reduces the risk of personal criticism later
Waiting too long can increase costs, restrict options, and expose directors to unnecessary risk. A CVL gives you structure, protection, and a clear end point.
Is a CVL the Right Option for Your Company?
A CVL is appropriate when a company is insolvent. Insolvency is not about whether the business feels difficult or stressful. It is a legal and financial test.
The Two Insolvency Tests
A company is considered insolvent if it fails either of the following:
Cash flow test
The company cannot pay its debts as they fall due. This might include:
- Overdue HMRC liabilities
- Suppliers being paid late or not at all
- Bounced payments or reliance on short-term funding
Balance sheet test
The company’s liabilities are greater than its assets, even if payments are being kept up for now.
If either applies, directors must prioritise creditors’ interests and consider formal insolvency options such as a CVL.
Common Warning Signs a CVL May Be Needed
Directors often contact us when they recognise patterns like:
- HMRC arrears building up with no realistic way to clear them
- Constant creditor chasing or legal letters
- Using personal funds just to keep the business afloat
- No clear route back to profitability
- Growing stress and uncertainty about what to do next
When a CVL May Not Be Appropriate
A CVL is not always the right answer. For example:
- If the company is solvent, an MVL or strike-off may be more suitable
- If the business is viable but under pressure, a rescue option such as a CVA could be explored
An insolvency practitioner can quickly confirm whether a CVL is appropriate or whether another route makes more sense.
Contact Anderson Brookes for a free, confidential assessment of your options. Call 0800 1804 935 or email advice@andersonbrookes.co.uk.
The Creditors’ Voluntary Liquidation Process: Step by Step
A CVL follows a clear legal process. While every case is different, the overall structure is the same and is designed to bring an insolvent company to an orderly close.
1
Speak to a Licensed Insolvency Practitioner
The process starts with a confidential discussion with a licensed insolvency practitioner (IP). This allows the company’s financial position to be reviewed and confirms whether a CVL is the most appropriate option.
At this stage, you will usually be asked about:
- Outstanding creditors (including HMRC)
- Company assets
- Employees and payroll
- Any personal guarantees or director loan accounts
This initial advice is designed to give clarity, not to pressure you into a decision.
2
Directors Decide to Place the Company into Liquidation
Once it is clear the company is insolvent, the directors formally resolve that the company should enter liquidation.
From this point onwards, directors must avoid:
- Making preferential payments
- Selling assets below market value
- Continuing to trade where losses are increasing
Taking advice early helps ensure these duties are met.
3
Shareholder Approval and Statement of Affairs
The company’s shareholders must approve the decision to liquidate. This requires a 75% majority vote.
At the same time, a Statement of Affairs is prepared. This document sets out:
- Company assets and liabilities
- Details of creditors
- The overall financial position of the business
The Statement of Affairs is provided to creditors so they can understand the situation clearly.
4
Appointment of the Liquidator and Creditor Decision Procedure
Once approved, the insolvency practitioner is formally appointed as liquidator. Creditors are notified and given the opportunity to hold a meeting.
In the creditors’ meeting, they can review the company’s financial position, ask questions and vote on the appointment of the liquidator, if they wish
In most cases, this is handled remotely through a creditor decision procedure rather than a physical meeting.
5
Asset Realisation and Statutory Investigations
The liquidator takes control of company assets and deals with their sale or collection.
They also carry out statutory duties, including:
- Reviewing the conduct of directors
- Identifying transactions that may need further explanation
- Reporting to the Insolvency Service where required
For the vast majority of directors who have acted responsibly, this stage is routine and does not result in any further action.
6
Distributions and Company Dissolution
If funds are available, distributions are made to creditors in the statutory order of priority.
Once all matters are dealt with, the company is removed from the register at Companies House and the liquidation is formally closed. At this point, the company ceases to exist.
Sectors We Support
We support company directors in every sector, from construction firms and logistics companies to pubs, cafés, restaurants, hotels, retailers and manufacturers. Our advice is always clear, confidential and shaped by real experience in your industry. Whether you’re dealing with unpaid tax, supplier pressure or falling income, our team understands the challenges and will guide you through the best next steps.
How Long Does a Creditors’ Voluntary Liquidation Take?
One of the first questions directors ask is how quickly a CVL can begin and how long the process lasts.
How Quickly Can a CVL Start?
In many cases, a company can be placed into liquidation within days, not months, once the necessary information is provided and decisions are made.
This speed is particularly important where:
- Creditor pressure is escalating
- HMRC enforcement action is threatened
- Directors want to stop trading immediately
How Long Does the Full Liquidation Process Take?
While entry into liquidation is often fast, the full process typically takes between six and twelve months.
The exact length depends on factors such as:
- The number and type of creditors
- Whether the company has employees
- The level of assets involved
- The complexity of any investigations
Straightforward cases with few assets and no complications may complete sooner. More complex cases can take longer.
The CVL timeline can be longer if:
- There are significant assets to realise
- Director loan accounts need to be resolved
- Employee claims are involved
- Additional enquiries are required by the liquidator
Your insolvency practitioner should be able to give a realistic indication of timescales based on your circumstances.
How Much Does a CVL Cost?
The cost of a CVL is a common concern, particularly when a company is already struggling financially. While costs vary, they are usually clear and agreed in advance.
Typical CVL Costs
A CVL involves professional fees and statutory work, including:
- Preparing the Statement of Affairs
- Acting as liquidator
- Communicating with creditors
- Realising assets and closing the company
The total cost depends on factors including the size and complexity of the company, the number of creditors, whether there are assets to realise and the number of employees involved.
In straightforward cases, costs are often lower than directors expect, particularly when compared to the risks and expense of allowing matters to escalate.
Who Pays for a CVL?
Where a company has assets, the liquidator’s fees are usually paid from those assets. If the company has no assets, directors are often asked to contribute towards the initial costs of placing the company into liquidation. This is common and does not reflect wrongdoing. Importantly, this contribution is typically limited and agreed in advance.
Can Redundancy Payments Help Cover the Cost?
Many directors are also employees of their own company. In these cases, it may be possible for directors to claim:
- Redundancy pay
- Unpaid wages
- Accrued holiday pay
- Notice pay
In some situations, these payments can significantly offset, or even exceed, the cost of a CVL. An insolvency practitioner can confirm whether you are eligible and what you may be able to claim.
What Happens to Directors in a CVL?
Directors often worry that entering a CVL means they have done something wrong. In most cases, this is not true. A CVL is a legal process designed to deal with insolvency in a controlled and responsible way. However, it is important to be aware of the implications of a CVL for directors, as there are duties you must fulfil.
Director’s Duties Once a Company Is Insolvent
When a company becomes insolvent, directors’ duties shift from shareholders to creditors.
Directors should avoid making preferential payments and avoid selling assets for less than market value. If losses are increasing, they should stop trading. They must also ensure that they seek professional advice promptly.
Following this approach helps demonstrate that you have acted responsibly.
Will I Be Personally Liable for Company Debts?
Directors are not automatically personally liable for company debts in a CVL, and personal liability generally only arises if:
- You have given personal guarantees
- There is an overdrawn director’s loan account
- There has been serious misconduct or wrongful trading
For the vast majority of directors, a CVL does not result in personal financial penalties.
Director Conduct Reviews and Investigations
As part of the liquidation, the liquidator must review the conduct of directors in the period leading up to insolvency. This is a standard requirement and does not mean action will be taken. If records are in order and advice has been taken at an appropriate time, this stage is usually straightforward and uneventful.
Can I Be a Director Again After a CVL?
In most cases, yes. There is no automatic ban on acting as a director following a creditors’ voluntary liquidation. This is one of the most common CVL myths.
Many directors go on to set up new businesses, take on directorships elsewhere, or continue trading in a different structure. Any restrictions only arise where there has been serious wrongdoing, which is uncommon.
Speak to an insolvency practitioner about your personal position. Call Anderson Brookes on 0800 1804 935 or email advice@andersonbrookes.co.uk.
What Happens to Employees and Redundancy Claims?
If your company has employees, a CVL can feel daunting. The situation for employees during a CVL is often uncertain. The key thing to know is that employee claims are a normal part of the process and there are established routes for employees (including many directors) to claim what they are owed.
Employee Rights in a CVL
When a company enters a CVL, employees are typically made redundant. Depending on their circumstances, employees may be able to claim for:
- Redundancy pay
- Unpaid wages (up to statutory limits)
- Accrued holiday pay
- Notice pay
The liquidator will guide employees through what happens next and what information is required to submit claims.
What to Do If You Have Staff
If you are considering a CVL and have employees, it helps to gather:
- A list of employees and start dates
- Payroll records and payslips
- Any outstanding wages or holiday
- Contract information (where available)
This keeps the process smoother and reduces stress for everyone involved.
Director Redundancy: Can Directors Claim Too?
In many cases, directors can also be classed as employees, which means they may be eligible to claim redundancy and other statutory entitlements.
Eligibility depends on the individual circumstances, including factors such as:
- Whether the director had a contract of employment (formal or implied)
- Whether they performed a genuine employee role
- Whether they were paid through PAYE
- Whether they worked set hours and had defined responsibilities
This can be an important part of planning a CVL, especially for directors who need financial breathing space to move on.
What Happens to Creditors in a CVL?
A CVL is designed to treat creditors fairly and transparently. Once the company is in liquidation, creditors are formally notified and given the opportunity to engage with the process.
How Creditors Are Notified and How They Can Vote
Creditors receive formal notice of the liquidation and the creditor decision procedure. They can:
- Review the Statement of Affairs
- Ask the liquidator questions
- Vote on the appointment of the liquidator (if they wish)
- Request a creditors’ meeting in certain circumstances
In many cases, this is managed through remote voting rather than an in-person meeting.
How Creditors Are Paid: Order of Priority
If the liquidator realises assets, funds are distributed according to a statutory order. Broadly, this typically follows:
- Secured creditors (where security exists)
- Preferential creditors (including certain employee claims)
- Unsecured creditors (suppliers, HMRC for some debts, etc.)
- Shareholders (rare in a CVL)
In many CVLs, there are limited assets, which means unsecured creditors may receive a low dividend or none at all. That can be difficult, but it is one reason formal liquidation exists: to provide a lawful and consistent framework when there is not enough money to pay everyone.
If creditors are threatening legal action now, early advice matters. Once a CVL is underway, creditor contact typically reduces significantly because the liquidator becomes the point of contact and the process becomes formal.
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CVL vs Other Options: Which Route Fits?
A CVL is not the only way to close or restructure a company. The right choice depends on whether the business is insolvent, whether it can be rescued, and whether directors need a clean and compliant end.
This section outlines the most common alternatives and when they may be appropriate.
CVL vs MVL
An MVL (Members’ Voluntary Liquidation) is only for solvent companies, typically used where a company has funds or assets to distribute to shareholders in a tax-efficient way.
A CVL is for insolvent companies that cannot repay what they owe. Our voluntary liquidation guide explains more of the key differences between a CVL and MVL.
If there is uncertainty about solvency, an insolvency practitioner can confirm the correct route before any formal steps are taken.
CVL vs Dissolution or Strike-Off
Striking off a company can be appropriate for solvent companies that have stopped trading and have no debts.
However, if a company is insolvent, dissolution can create problems:
- Creditors can object to the strike-off
- Directors may face scrutiny if the company is dissolved with debts unpaid
- The company can be restored to the register and enforcement action can continue
If the company has outstanding liabilities, a CVL is often the safer and more compliant route.
CVL vs CVA or Administration
Where a business is viable but under pressure, a rescue procedure may be possible.
A CVA (Company Voluntary Arrangement) can allow a company to agree an affordable repayment plan with creditors while continuing to trade.
Administration is typically used in more complex cases, often where there is a need to protect the business while a sale or restructure is arranged.
If the business cannot be saved, or continuing to trade will worsen losses, a CVL is often the more straightforward option.
CVL vs Compulsory Liquidation
Compulsory liquidation happens when a creditor forces the company into liquidation via the courts.
Directors often prefer a CVL because it:
- Gives more control over timing
- Can be faster and less disruptive
- Helps demonstrate responsible action once insolvency is clear
Read our comparison of CVL and compulsory liquidation to learn more.
Creditors’ Voluntary Liquidation FAQs
Below are answers to some of the most common questions directors ask when considering a CVL. These are general answers; an insolvency practitioner can confirm how they apply to your situation.
Can I place my company into a CVL if it has no money?
Yes. Many companies enter a CVL with little or no cash left.
If there are no assets, directors are usually asked to make a limited contribution towards the initial costs of placing the company into liquidation. This is common and does not imply wrongdoing.
What happens to HMRC debts in a CVL?
HMRC is treated as a creditor in a CVL. Any outstanding tax liabilities are included in the liquidation. Whether HMRC receives a dividend depends on the assets available and the order of priority. Directors are not personally liable for HMRC debts unless a personal guarantee or misconduct applies.
What about Bounce Back Loans or other government-backed loans?
Bounce Back Loans are unsecured company debts. If the company cannot repay them, they are dealt with through the CVL like other unsecured liabilities. Personal liability only arises if the loan was personally guaranteed or used improperly.
Will my credit rating be affected?
A CVL affects the company, not your personal credit file. Your personal credit rating is only impacted if:
- You have given personal guarantees that are called in
- You have other personal liabilities linked to the company
Can I be a director again after a CVL?
In most cases, yes. There is no automatic restriction on acting as a director after a CVL. Many directors go on to start new businesses or take on new roles once the liquidation is complete.
Can I buy back company assets in a CVL?
It is sometimes possible for directors to purchase company assets from the liquidator, provided:
- Assets are sold at market value
- The transaction is transparent
- The liquidator is satisfied it is in creditors’ interests
This must always be handled properly and with professional liquidation advice.
What if creditors are threatening legal action now?
Early advice is important. In many cases, once a CVL is underway, creditor pressure reduces because the liquidator becomes the point of contact and the process becomes formal. Delaying can increase costs and limit options.
Do I have to attend a creditors' meeting?
Most CVLs now use a remote creditor decision procedure rather than a physical meeting. Creditors can request a meeting in certain circumstances, but directors are not usually required to attend.
Getting Advice on a Creditors’ Voluntary Liquidation
If your company is insolvent, getting advice early gives you more control and more options. Anderson Brookes is here to help. A confidential conversation with one of our licensed insolvency practitioners can clarify whether a CVL is the right route for you, and help you to understand the implications for you and your employees and creditors.
You don’t need to have full accounts to hand to get started. Any information you do have can help us to determine the best course of action for you.
Once you get in touch, our team will:
- Review your situation confidentially
- Explain your options clearly
- Outline next steps if a CVL is appropriate
Our consultations are free, and there’s no obligation to proceed.
If you’re ready to talk, we’re here to listen. Take the first step on your path forward today. Call us on 0800 1804 935, or contact us online.