In the latest of our recap series on the most frequent insolvency procedures used across the UK, we turn to the most used of them all – the Creditors Voluntary Liquidation or CVL.
They are used in their thousands each and every year by directors to close a business but what is it that makes the CVL the process of choice?
What benefits does it bring and what do business owners contemplating liquidation need to know before they go ahead?
The recent story of CVLs
| 2019 | 2020 | 2021 | 2022 | 2023 | 2024 (up to July) | |
| Creditors Voluntary Liquidation | 12,056 | 9,488 | 12,655 | 18,821 | 20,570 | 11,446 |
Figures from the Insolvency Service
Taking 2019 as a baseline figure for CVLs, there were approximately 1,000 cases a month being processed from appointment to closure.
These numbers dropped by around 20% in the first year of the Covid pandemic with lockdowns, furloughs and other economic conditions that hadn’t been seen in our collective lifetimes.
They rebounded in 2021 but then increased 39% in 2022 and again by 8.5% 2023. The figures up to and including July are already close to the yearly totals of 2019 and 2021 (and have surpassed 2020) and are likely to be greater than the 2023 total.
The benefits of a CVL
Why would directors consider a creditors voluntary liquidation then over any alternative such as administration or a CVA?
There are several significant reasons:
- Unsecured debts written off: At the end of the CVL process, a proportion of unsecured debts are written off for good
- A proven and efficient process: A CVL is a legal and orderly method to close a business that is no longer financially viable
- Control and timing: Directors can choose an insolvency practitioner to oversee the process, retaining elements of control including the timing
- Protection from creditors: Once the liquidation process begins, creditors and others are prevented from taking further legal action against the company and ongoing actions are frozen
- Protection for directors: Directors actions are always looked at in a CVL but as long as they can demonstrate they are acting in the best interests of creditors then they will have little to fear. For instance, allegations of wrongful trading could be reasonably defended against
- Director redundancy: If a director is paid in part through the PAYE system then they could be eligible for redundancy pay
CLV, MVL, CL? Which is which?
Insolvency attracts jargon and acronyms like any other sector and it can sometimes be hard to differentiate between insolvency procedures.
Compulsory liquidation (CL) is initiated by creditors or by another external party/parties though a court petition. This occurs when a business is unable to meet its financial obligations and is continuing to trade with little confidence it will achieve profitability.
A Members’ Voluntary Liquidation (MVL) is initiated by the directors of a company that is solvent or can pay off its debts within a 12 month period. They decide the timing and have control of the process as well as the tax benefits that can be realised.
By contrast, a Creditors’ Voluntary Liquidation (CVL) is initiated by company directors when they understand that their business is insolvent, is unable or unlikely to achieve solvency and they decide to close it.
How does a CVL work?
- Initial advice meeting (completely free)
After you contact us, we’ll arrange a free online or face-to-face consultation meeting at a convenient time and place for you. One of the company’s directors will be required to explain the financial situation in more detail and answer any specific questions.
After this meeting, we’ll be able to supply you with an initial outline of all available options (not exclusively limited to a CVL) as well as any further information and data we’d require in order to proceed.
- Information review and advice (also free)
After we review all the information we need and provide advice on what options are available, we’ll give you our full and complete fee quote and terms of business for you to review. We are always fully up front about work required and costs so there’s no surprises.
This includes dealing with any company assets, how they could be purchased if you’re interested, and any other company specific matters including outstanding leases, personal guarantees or contracts.
- Formal instruction and creditors meeting
If you decide to proceed with a CVL with us and are agreeable with the terms then you would formally instruct us to represent you. We would then call a meeting of the company shareholders and creditors which would take place nine to 21 working days after formal instruction.
- Shareholders and creditors meeting
Both of these meetings take place on the same day and are held remotely. The shareholders meeting is held first. A director is required to attend by video also.
Any creditors with questions can ask for them to be put forward on the conference call. Meetings usually last between 30 and 90 minutes after which the company is formally placed into liquidation.
- Post liquidation assistance & closure
All the company’s financial records and books are moved to the liquidator’s office as a legal requirement and all assets are properly released and dispersed.
Every director is required to complete a questionnaire on their actions and reasoning from the Insolvency Service. Once all outstanding matters have been dealt with then the liquidation is closed.
Three months after this date, the company is formally dissolved and removed from the Companies House register.
We hope this has demystified the CVL for you and if it sounds like it could be of interest to you and your business then get in touch with us.
You might have more options and room to manoeuvre than you might think but you won’t know until you speak with us!