Creditors Voluntary Liquidation

If a limited company is struggling to pay its debts, one insolvency process that can be used is a creditors voluntary liquidation, this method is a legal way by which a company is closed down and its assets are sold to pay off its debts. 

People sometime refer to this type of business liquidation as a CVL. Once the directors and the shareholders of a company have decided to pursue a CVL, an insolvency practitioner will be engaged and a meeting of the company’s creditors is called. At the meeting, the creditors get the chance to approve the decision – hence the term ‘creditors’ voluntary liquidation’.

The insolvency practitioner or IP will oversee the process and ensure all the rules and regulations are adhered to. They effectively take over the role of the directors to finalise the affairs of the company.

Once all the assets have been sold off and the voluntary liquidation has been completed, the company is dissolved and removed from the Companies House Register.

Get Immediate Help:


What is a Voluntary Liquidation?

A Voluntary Liquidation (CVL) is a formal business insolvency process used by Directors, to close down a limited company that can not repay its debts. The CVL commences with the Directors instructing a Licensed Insolvency Practitioner to act as Liquidator.

Once appointed, the role of the Liquidator is to realise the value of the company’s assets in order to repay as much of the debt as possible. Once all the company’s assets have been dealt with, the Liquidator will close the company.

In the UK, over 1,000 limited companies are liquidated every month. This type of insolvency is by far the most popular form of closure. This page deals with CVL’s however there are other types of liquidation available.

What some directors don’t realise is that liquidating a loss making company isn’t just a way of cutting your losses and closing down the business. It can also provide an opportunity to relaunch the business debt free, with the assets, employees and goodwill transferred and sold to a new phoenix company, which is debt free.

Of course you may wish simply to walk away from what you believe is an unrecoverable situation, but you may also want to get that second chance having learnt some very valuable business lessons. Either way it is important you take proper advise and have all options, including business turnaround strategies explained. Remember it is important to understand the pro’s and cons, and have the upsides and downsides explained before making a final decision.

Why put a Company into Creditors’ Voluntary Liquidation (CVL)?

These are some of the reasons for placing a company into Voluntary Liquidation:

  • The company has received a winding up petition or statutory demand from a creditor. If the company is unable to pay its debts, then a Voluntary Liquidation rather than a compulsory liquidation will be a better option.
  • The balance sheet test for the company shows it is insolvent, this is clearly shown by by virtue of its liabilities exceeding the assets of the company. Losses are only likely to increase and without a dramatic turnaround within the business trade the Directors should be conscious that continuing to trade might infringe on wrongful trading.
  • The company cannot pay its rent as a result the landlord has appointed bailiffs to seize the assets of the company.
  • The companies time to pay agreement has fallen behind with HM Revenue & Customs, as a result HMRC have issued a winding up petition.
  • The company may be suffering from bad debts and this is having substantial effect on the businesses cashflow, and now failing to meet its current liabilities with creditor pressure.

It is crucial that directors take steps immediately to consult BIH once it is envisaged that the company cannot continue with its loss making ways and need advice about the future of the business.

Process for Creditors’ Voluntary Liquidation?

The process for carrying out a creditors voluntary liquidation can only be undertaken by an Insolvency Practitioner. The IP will be able to give you the sound, practical advice and confidential advice that is needed when dealing with a distressed company and you are highly encouraged to speak to one at the earliest signs of insolvency.

They will be able to discuss the various options available to you and your company which may involve rescue and restructuring procedures such as Administration, Members voluntary liquidation or a CVA.

However, should the business be beyond rescue, or it is the preference of the directors and shareholders to close the company for good, and place the company into a cvl.

1.      Board meeting of Directors or Decision of Sole Director

Once the directors or a sole director have taken the advice of a Insolvency Practitioner and have concluded to commence the liquidation, they hold a meeting of the board or directors, or in the case of a sole director document a decision of a sole director, resolving to convene a general meeting of shareholders and a decision of creditors to place the company into liquidation (“Decision Date”).

It is at this point that the directors formally instruct a Practitioner via a resolution to oversee the process and draft the relevant documentation to commence the process.

2.      Notice to Shareholders and Creditors

Following the decision of the director(s) to commence the Liquidation, shareholders and creditors will be notified of the general meeting and Decision Date respectively.

Prior to the Decision Date, creditors will be presented with an Estimated Statement of Affairs of the Company. This is a document which sets out the financial position of the company, detailing its assets and liabilities, providing estimated realisable values of company assets and an estimated deficiency to creditors.

In addition a report is prepared by the Insolvency Practitioner providing a brief trading history, extracts from the company’s recent accounts and a deficiency account, detailing financial movements and assumed financial movements between the date of the last accounts and the date of liquidation. This report and the statement of affairs must be made available to creditors the day before the Decision Date, at the latest.

3.      Liquidation Commences

The general shareholders meeting and Decision Date of Creditors will usually take place on the same day. In order for the company to enter liquidation at least 75% of shareholders agree to wind the Company up.

There is no longer a requirement to hold a physical meeting, unless requested by at least 10% of creditors in value, 10%  in number, or 10 creditors. In the absence of any such requests, the Liquidation commences at 23:59 on the Decision Date, with the appointment of the liquidators being deemed approved.  This can be conducted remotely with the director(s), which removes an element of stress from the process as well as Covid 19.

4.      The Liquidation

During the liquidation of the company the Insolvency Practitioner will continue to liaise with creditors, resolve any issues related to claims, and take the appropriate actions necessary to realise the company assets so that the proceeds can be used to distribute to outstanding creditors.

All assets will be independently valued, marketed and sold as appropriate. It is possible for the directors of the insolvent company to purchase assets of the company, as long as this sale is negotiated through the Insolvency Practitioner and they are purchased at market value.

The Insolvency Practitioner will also be responsible for collecting outstanding book debts, handling employee claims, issuing the necessary reports to government agencies, and distributing available funds. There is a set order of priority laid out in the Insolvency Act 1986 which must be followed when funds are being allocated to creditors. Secured creditors with a fixed charge are first in line for payment, followed by preferential creditors HMRC and arrears of wages for employees, and then secured creditors with a floating charge (subject to any deductions for the Prescribed Part).

Unsecured creditors, such as suppliers, customers are next in the pecking order, although unfortunately at this stage there is unlikely to be sufficient remaining funds to allow for significant returns to be made.

Creditors voluntary liquidation advantages and disadvantages

There are a number of advantages and disadvantages to a creditors voluntary liquidation, below we explain what they are:

Advantages of Liquidation

The are a number of advantages of a creditors’ voluntary liquidation these include:

  • Stops Bailiffs and Legal Action against the Company; including HMRC / TAX / VAT Enforcement
  • Can be completed by Phone and Email – usually no need to attend any Meetings.
  • The costs of formal insolvency are usually covered by the value of company asset
  • No ongoing monthly payment plans
  • Simple way to close company that does not require your Creditors to agree to it
  • Company can be liquidated in 14 days
  • Employees can often claim unpaid wages, holiday pay and redundancy from the Insolvency Service*
  • Directors may also be able to claim back ‘thousands’ in unpaid wages and redundancy


  • Any liquidation process brings with it an investigation into the directors’ conduct and dealings
  • Company debts personally guaranteed will be called in
  • The insolvency will be advertised publicly in the London Gazette
  • Shareholders are unlikely to receive any returns

What’s the job of a Liquidator in a CVL?

The law requires that the liquidator be a qualified and licensed insolvency practitioner. IP’s have a duty of care to act in good faith, and to maximise the return for company creditors.

The liquidators principal role is to realise the company’s assets and distribute the proceeds to creditors.

The licensed Insolvency Practitioner also has wide-ranging powers to investigate directorial conduct and, where appropriate, bring charges of wrongful trading.

Creditors Voluntary Liquidation Cost?

The costs of the process very much depends on the complexities of the case and the likely time it will take the Insolvency Practitioner to carry out their duties and responsibilities.  The main things to consider are;

  1. The number of creditors and how much is owed.
  2. How many employees there are
  3. Are there any book debts to collect
  4. How much investigation is need into the company’s affairs.

The costs of a business liquidation can put directors off but not doing anything is likely to cost you more in the long run!  Generally the costs start at around £3500 + VAT

What are the Creditors’ Rights in a CVL?

While the name may suggest otherwise, a creditor cannot instigate a CVL. The creditors, however, do have rights throughout the insolvency process.

The creditors are also entitled to see a list of all creditors of the company and to view a summary of the Statement of Affairs at the Meeting of Creditors. They are asked to vote to approve the Liquidator and can even create a committee to control liquidation costs

Creditors are paid by order of priority as a dividend from the sale of the company assets.

What are the Creditors’ Duties in a CVL?

The ‘duties of creditors’ are rights as opposed to an obligation. As a creditor you may have lost substantial amounts of money so it is in your interest to get involved.

In order to become a creditor in the first place you must first register as a creditor and complete a Statement of Claim with the liquidator. This may require proof such as unpaid invoices and evidence of goods delivered for example.

Once you are registered as a creditor you will be invited to a Meeting of Creditors and notified at least 7 days before the meeting takes place. The meeting will be geographically convenient for the creditor majority. At this meeting you can:

  • Vote on the appointment of the liquidator
  • Ask questions of the liquidating company director/s
  • View a sworn Statement of Affairs [A list of the company assets and liabilities]
  • View a history of the liquidating company up to its liquidation
  • View a summary of all claims of all creditors

If you cannot attend the creditors meeting, or you may not want to attend, you can vote by Proxy on the liquidators’ appointment. A report of what happened at the meeting will be sent within 28 days of the meeting taken place.


What does creditors voluntary liquidation mean

A creditors voluntary liquidation means that the directors of a distressed company, with agreement of the shareholders, voluntarily elect to place the business into liquidation in in order to pay its debts.