What Is a CVL? Creditors' Voluntary Liquidation Explained

A Creditors' Voluntary Liquidation (CVL) is the process a company's own directors use to close down a business that can no longer pay its debts. "Voluntary" means the directors start it themselves rather than being forced by a court; "creditors'" means the company is insolvent, so the people owed money have a formal say in how it is wound up.

It is by far the most common form of UK corporate insolvency. If you have searched for "what is a CVL" after seeing the term on a supplier's account or in a Gazette notice, this guide explains exactly what it involves.

CVL in one sentence

A CVL is a shareholder-initiated, creditor-supervised liquidation of an insolvent company, run by a licensed insolvency practitioner who sells the company's assets, distributes the proceeds to creditors in the legal order of priority, and then dissolves the company.

When is a CVL the right route?

Directors have a legal duty to act in the interests of creditors once a company is — or is likely to become — insolvent. A company is insolvent if it either:

• cannot pay its debts as they fall due (the cash-flow test), or
• has liabilities greater than its assets (the balance-sheet test).

If a business meets either test and there is no realistic prospect of turning it around, continuing to trade risks wrongful trading and personal liability for the directors. A CVL is the orderly way to stop, and it is often the responsible choice rather than a failure.

The CVL process, step by step

1. Take advice. Directors instruct a licensed insolvency practitioner (IP), who reviews the company's position and confirms whether liquidation is appropriate.
2. Board meeting. The directors resolve that the company is insolvent and should be wound up, and convene meetings of shareholders and creditors.
3. Shareholders' resolution. Shareholders pass a winding-up resolution — this needs holders of at least 75% by value of the shares to agree. They also nominate a liquidator.
4. Creditors' decision. Under the Insolvency Rules 2016, creditors are asked to approve the choice of liquidator through a decision procedure (often a "deemed consent" process or a virtual meeting). Creditors can nominate a different IP.
5. Liquidator appointed. From appointment, the IP takes control. The directors' powers cease.
6. Realising assets. The liquidator sells property, plant, stock and debtors, investigates the company's affairs, and reports on the conduct of the directors.
7. Distribution. Funds are paid out in strict order: secured creditors, then the liquidator's costs, then preferential creditors (including some employee claims and, since December 2020, certain HMRC debts), then unsecured creditors, and finally shareholders (who almost never receive anything in an insolvent liquidation).
8. Dissolution. About three months after the final report, the company is struck off the register and ceases to exist.

What does a CVL cost?

The liquidator's fees are normally paid from the company's assets, not by the directors personally. Where there are too few assets to cover the work, directors sometimes fund the process privately so it can proceed. Fees must be approved by creditors and are disclosed throughout.

What happens to the directors?

For most directors, a CVL ends without personal consequences. But the liquidator is legally required to submit a report on directors' conduct to the Insolvency Service. Problems can arise where directors:

• carried on trading while knowing the company was insolvent (wrongful trading);
• gave away assets or paid favoured creditors ahead of others shortly before liquidation (preferences and transactions at undervalue);
• signed personal guarantees — these survive the company's dissolution and can be called in.

Acting early and taking advice is the single best way to avoid these outcomes.

CVL vs other procedures

• CVL vs compulsory liquidation: a CVL is started by the company; compulsory liquidation is forced by a court on a creditor's winding-up petition.
• CVL vs administration: administration tries to rescue the business or get a better result for creditors; a CVL simply closes an insolvent company down.
• CVL vs CVA: a CVA keeps the company alive under a repayment deal; a CVL ends it.
• CVL vs MVL: an MVL is for solvent companies being closed tax-efficiently; a CVL is for insolvent ones.

Track CVLs as they happen

Every CVL is a matter of public record. Insolvency List indexes them the moment they appear in The Gazette — you can browse the live feed or filter by industry and region to see which companies have entered liquidation.

*This article is general information, not legal or financial advice. If your company is facing insolvency, speak to a licensed insolvency practitioner about your specific circumstances.*