Creditors' voluntary liquidation: step by step for directors

A creditors’ voluntary liquidation is the way directors close a company that cannot pay its debts on their own initiative, with a licensed insolvency practitioner running it, and it is usually the cleanest exit available.

What a CVL is, and what it is not

A CVL is a liquidation you start. The shareholders resolve to wind the company up, the creditors are told, a licensed insolvency practitioner is appointed as liquidator, and the company’s assets are sold to pay creditors as far as they go. The company then ceases to exist.

It is not a rescue. If you want the business to carry on trading, you are looking at administration, a company voluntary arrangement or a restructuring plan, and those are different conversations. A CVL ends the company.

It is also not the same as compulsory liquidation, where a creditor (very often HMRC) petitions the court and the Official Receiver takes over. In a CVL you choose the timing and the practitioner. In compulsory liquidation someone else chooses both, and the investigation into your conduct tends to be less forgiving.

Who it is for

A CVL is the right route when three things are true: the company cannot pay its debts as they fall due, there is no realistic prospect of that changing, and there is no buyer for the business as a going concern. If the company has a few thousand pounds of debt and no assets, a CVL may cost more than it saves, and the practitioner will tell you so. If the company has significant debts, assets to realise, employees, or an overdrawn directors’ loan account, a CVL is almost always better than the alternatives.

The process, step by step

The whole thing, from first call to the liquidator’s appointment, usually takes two to four weeks. The liquidation itself then runs for anything from six months to two years, but your active involvement is concentrated in the first month.

1. The first conversation with an insolvency practitioner. You describe the position: debts, assets, employees, the bank, HMRC, any personal guarantees, the DLA. The practitioner tells you whether a CVL is the right route and roughly what it will cost. This conversation is free and it is not a commitment.
2. The directors’ decision. The board resolves that the company is insolvent and that a CVL should be proposed. From this point the directors’ duties are to the creditors, not the shareholders. You stop trading unless the practitioner advises otherwise, and you do not pay anyone you would rather pay (yourself, a family member, a friendly supplier) ahead of the rest.
3. The practitioner prepares the paperwork. A statement of affairs listing every asset and every creditor, a report on the company’s history and why it failed, and notices to the shareholders and creditors. You supply the records; they do the drafting.
4. Shareholders’ meeting. The shareholders pass the resolution to wind up the company and nominate the liquidator. With a small company this is often you, on a piece of paper, the same day.
5. Creditors’ decision. Creditors are given the chance to approve the appointment or nominate a different liquidator. Since 2017 this is normally done by a deemed consent procedure or a virtual meeting rather than a physical one. In most small-company CVLs nobody objects and the directors’ nominee is confirmed.
6. Appointment. The liquidator is in control. Your role as director ends, apart from a continuing duty to cooperate and hand over whatever they ask for.
7. Realisation. The liquidator sells the assets, collects money owed to the company (including the DLA), deals with the employees’ claims through the Redundancy Payments Service, and agrees creditors’ claims.
8. Investigation and report. Every liquidator must investigate the directors’ conduct and report to the Insolvency Service within three months of appointment. Most reports result in no further action.
9. Distribution and closure. Money is paid out in the statutory order. The liquidator files final accounts and the company is dissolved three months later.

What it costs

A CVL for a small company with few assets and a straightforward creditor list typically costs somewhere between £4,000 and £8,000 plus VAT and disbursements. That is paid from the company’s assets where there are any. Where there are not, the directors pay it personally, and some practitioners will take it in instalments. The figure rises with the number of creditors, the number of employees, and anything contentious. Any practitioner will quote before you commit, and you should ask two for quotes.

What it means for you

Your directorship. It ends on the liquidator’s appointment. You can be a director of other companies, and you can start a new one, subject to the restrictions on reusing the old company’s name.

Personal guarantees. The company’s debts die with the company. Your guarantees do not. A lender with a guarantee from you will pursue you directly once the company cannot pay. This needs to be on the table at the first conversation, because it changes the plan.

The directors’ loan account. If it is overdrawn, the liquidator will ask you to repay it. Settle it as part of the process rather than after.

Bounce Back Loans. These are company debts and you are not personally liable for them unless you gave a guarantee (which the scheme did not require) or misused the money.

Your credit record. A CVL is a company event, not a personal one. It does not appear on your personal credit file. It does appear on the public record at Companies House and the Gazette.

Four mistakes to avoid in the weeks before

1. Paying creditors selectively. Repaying a family loan, a mate’s invoice or your own DLA ahead of HMRC is a preference. The liquidator can reverse it, and it reads badly in the conduct report.
2. Selling assets cheaply to someone connected. Transferring the van to your brother for £500 is a transaction at undervalue and will be unwound.
3. Taking the money out of the bank. Once the company is insolvent the cash belongs to the creditors. Moving it anywhere else is the single most damaging thing you can do.
4. Trading on in the hope something turns up. Every week of trading after the point where you knew the company could not recover is a week of potential wrongful trading, and that is where personal liability starts.

What to do today

1. Write down the position: what the company owns, what it owes and to whom, who is employed, and what you have personally guaranteed.
2. Stop paying anyone until you have had the first conversation.
3. Gather the last two years of accounts, the bank statements for the last six months and the current aged creditors list.
4. Speak to a licensed insolvency practitioner and ask for a written quote.