Creditors’ Voluntary Liquidation

A Creditors’ Voluntary Liquidation – often abbreviated to CVL – is a formal liquidation process which brings about the end of an insolvent limited company.

As the name suggests, a Creditors’ Voluntary Liquidation is a voluntary way of placing an insolvent company into liquidation and one which is initiated by directors/shareholders when they believe their company’s financial problems have taken it beyond the point of rescue.

A CVL can only be entered into under the guidance of a licensed insolvency practitioner who will assume the role of liquidator during the process.

The CVL process will be handled from start to finish by the appointed licensed insolvency practitioner. As the company’s liquidator they will have a number of specific roles and responsibilities during the liquidation process, these range from identifying company assets, liaising with outstanding creditors, and ensuring the companies eventual closure is finalised.

All employees will be made redundant as part of the liquidation process and the company will no longer exist as a legal entity. The company’s name will be removed from the register held at Companies House meaning no further trading can take place. Any company debts which remain at this point will be written off, unless these have been secured with a personal guarantee (PG). If personal guarantees have been given, these will crystalise at the point of liquidation and responsibility for repaying this borrowing will fall to the individual who provided the personal guarantee which would typically be the company director.

Just because you have been the director of a company which has been liquidated through a CVL does not mean that you will be unable to run a limited company again. Unless you have been disqualified from acting as a director, you are free to set up another company and begin trading again, whether this is in the same sector or a completely separate field entirely.

There are however restrictions on reusing the same or a similar trading name as the liquidated company, so be sure you speak to your insolvency practitioner about your future intentions if you are keen to incorporate another limited company following the CVL.

While no one goes into running a business with the intention of it failing, this is unfortunately a risk every company director takes. In many instances of insolvency, voluntary liquidation is often the best course of action for a company which is beyond the point of rescue.

As the director of an insolvent company, you have certain legal duties and responsibilities. One of these is that once you become aware that your business is insolvent, or is soon to become insolvent, you must do all you can to prioritise the interests of creditors above those of your own or those of your fellow directors or shareholders.

In practice, this means you must not engage in any activity which could worsen the position of creditors or cause them to suffer any further financial losses. In many cases, once a company becomes insolvent, all trading must cease immediately, although there are some occasions when it may be determined that continuing to trade an insolvent company may be beneficial to creditors if this could increase returns. This is an extremely complex area, however, and you are strongly advised to consult a licensed insolvency practitioner once you become aware that your company is insolvent.

By placing your company into a CVL process once you know it to be insolvent, you are demonstrating your desire to protect outstanding creditors as far as possible, thereby ensuring you are acting in a way which is compliant with your legal duties.

Away from your legal duties, on a personal level, placing a struggling company into liquidation can come as a huge sense of relief particularly if you have been dealing with increasingly impatient creditors and worrying about the future.

If you would like to explore your liquidation and company closure options, arrange a free consultation with a licensed insolvency professional at Begbies Traynor, who can help you better understand your options.