What a CVL is

A Creditors’ Voluntary Liquidation is the standard route for closing a company that cannot pay its debts. The directors and shareholders decide to wind it up, a licensed insolvency practitioner is appointed as liquidator, and the company is handed over.

It is voluntary in the sense that you start it rather than waiting for a creditor to force the issue. For a company that has genuinely run out of road it is usually the right answer.

How it runs

1. An insolvency practitioner reviews the position and confirms the company is insolvent
2. The directors resolve that the company cannot continue
3. Shareholders pass a resolution to wind up — 75% by value of those voting
4. Creditors are given notice and a decision procedure, and may appoint a liquidator of their own choosing
5. The directors prepare a statement of the company’s assets and liabilities
6. The liquidator realises the assets, investigates the company’s affairs, and distributes what there is
7. The company is struck off around three months after the final account

What it costs

Usually from around £3,000 to £7,000 plus VAT for a small company, rising with complexity. It comes out of the company’s assets where there are any — and where there are not, it is commonly paid personally by a director. That is the point at which many directors discover that closing a company properly costs money they do not have.

What it means for you

The liquidator has to look at how the company was run and report on the conduct of everyone who has been a director in the last three years. Most directors hear nothing further. The things that attract attention are consistent: an overdrawn loan account, paying some creditors and not others in the run-up, assets sold cheaply, and records that cannot be produced.

If your loan account is overdrawn, expect to be asked for it in full.

Employees

Employees can claim redundancy pay, notice pay, arrears of wages and holiday pay from the National Insurance Fund, up to statutory caps. Directors with a genuine employment contract may be able to claim too, assessed case by case.

Starting again afterwards

Generally you can, unless you have been disqualified. But there are restrictions on reusing the liquidated company’s name, or one very like it, for five years — and breaching them is serious. Take advice before reusing a name.

How this compares to a sale

A sale is not a substitute for a CVL and we do not present it as one. Where a company is plainly insolvent with nothing left, a CVL is very often the right route, and cost alone is not a good reason to avoid it. Where there is still something an acquirer wants, a sale may be available instead. We will tell you honestly which of those you are looking at.