What is a Creditors Voluntary Liquidation (CVL)?

When a company enters a CVL, it is placed into a formal insolvency process so it can be closed properly. A licensed insolvency practitioner is appointed as liquidator to deal with the company’s affairs, which may include gathering information, realising assets, notifying creditors, and bringing the company to an orderly close. For directors, a CVL provides a structured way to deal with an insolvent company where there is no realistic prospect of recovery.

A CVL can provide a formal way to close a company that cannot pay its debts and is no longer viable. It can help by taking the process out of day-to-day firefighting, putting a licensed insolvency practitioner in charge, and dealing with the company’s debts and closure through a proper legal process. However, a CVL also has drawbacks, including the company being closed, possible employee redundancies, and some personal liabilities may still remain.

A CVL can begin relatively quickly once the decision has been made and a liquidator is appointed. From that point, the company is in a formal liquidation process and the insolvency practitioner takes control of dealing with the company’s affairs, including its assets and creditor claims, so directors are no longer trying to manage those issues in the normal course of business. The full liquidation usually takes longer, because the liquidator must finish winding up the company’s affairs before the company can be dissolved. Once the final account is filed, the company is normally dissolved three months later.

The cost of a CVL will depend on your company’s circumstance, there is not one fixed fee in every case. A smaller, more straightforward company will usually cost less to place into liquidation than a larger or more complex one. The fee reflects the work involved in dealing with the company’s affairs properly through a formal insolvency process, rather than simply filing paperwork.

A personal guarantee does not usually fall away just because your company enters CVL. The liquidation deals with the company’s position, but a personal guarantee is your own separate promise to repay a debt if the company cannot. If you have signed one, the creditor may still be able to pursue you personally even after the company has gone into liquidation.

As a director of a company in a CVL, your main duties are to act carefully once insolvency is apparent, avoid worsening creditor losses, and cooperate fully with the liquidator.

You should consider a CVL for your company when it can no longer pay its debts and there is no realistic prospect of recovery. This may be the case if HMRC arrears are building, creditor pressure is increasing, legal action has started, or the business is only continuing by delaying payments it cannot afford to meet. For directors, taking advice at this stage can help you understand whether a CVL is the right option and reduce the risk of the position getting worse.

Yes, it can be possible to reuse your old company name after a CVL, but only if one of the legal exceptions applies or the court gives permission. Without that, directors of a company that has gone into insolvent liquidation are generally restricted for 5 years from being involved with another company or business using the same or a similar name. The main exceptions are where the business is bought from the liquidator and the required notice procedure is followed, where the court gives permission, or where another company has already been using the name continuously for at least 12 months before the liquidation.

When a company enters a CVL, employees are usually made redundant because the company is being closed. They may be able to claim certain statutory payments, including redundancy pay, unpaid wages, holiday pay and statutory notice pay, subject to eligibility and statutory limits. If the company cannot pay those amounts because it is insolvent, qualifying claims are usually made to the Redundancy Payments Service (RPS). In some cases, where the business or assets are sold and trading continues through another company, employee rights may be affected by TUPE, but that will depend on the circumstances.

Yes, in some cases it is possible to buy back some or all of the business or assets after CVL. However, this is not something directors can simply do themselves once the company enters liquidation. The liquidator manages this process, and any sale must be handled properly, at the right value. For directors, the practical point is that buying back the business or assets may be possible, but it has to be done through the liquidator and structured correctly.