Advantages and drawbacks of CVL

Creditors Voluntary Liquidation (CVL) offers many benefits, but it’s important for directors to balance these against its drawbacks. Understanding both the opportunities for resolution and the potential challenges it presents is essential for directors to have a well-informed understanding of the process.

• Advantages of Creditors Voluntary Liquidation (CVL)
  • Streamlined closure and debt resolution
    CVL allows directors to formally wind up an insolvent company with shareholder approval, leading to the write-off of all unsecured debts. This process provides a clear end to the company’s existence and financial obligations.
  • Options for business continuity and asset transfer
    Through pre-pack liquidation under CVL, assets can be transferred to a new or existing company, enabling uninterrupted business operations and potential employee transfers under TUPE regulations.
  • Legal protection and compliance
    Initiating CVL halts all legal actions against the company and demonstrates the directors’ commitment to legal obligations and creditor prioritisation. This approach reduces the risk of accusations of wrongful trading during insolvency investigations.
  • Director autonomy and future opportunities
    CVL allows directors to maintain control over the liquidation process, including selecting the liquidator, and does not restrict them from holding directorships in other companies. This facilitates future business involvement and offers opportunities for a fresh start.
  • Ease of management and reduced burden
    The insolvency practitioner manages all communications with creditors, easing the director’s responsibilities. Additionally, CVL leads to the cancellation of leases and contracts, further reducing the company’s ongoing financial commitments.
  • Employee and director entitlements
    Those affected by the company’s closure, including employees and directors, may be eligible for statutory entitlements such as redundancy pay, holiday pay, and unpaid wages.
• Drawbacks of Creditors Voluntary Liquidation (CVL)
  • Personal liability for overdrawn Directors’ Loan Accounts (DLA)
    Directors may become personally liable for any overdrawn loan accounts when the company enters liquidation.
  • Restrictions on reusing company name
    Directors are prohibited from using or being involved in a business with the same or similar name for five years post-liquidation, with limited exceptions.
  • Employee Redundancy
    All employees will be made redundant when the company enters CVL, although they may have the opportunity to transfer to a new company under TUPE regulations and claim statutory entitlements.
  • Personal guarantees
    Directors who have provided personal guarantees for company debts are obligated to repay these debts, even after the company enters CVL.