Company voluntary liquidation
If your business is suffering financial distress, you may wish to use a creditors’ voluntary liquidation (also known as ‘CVL’) to shut down your business and end trading.
Unlike compulsory liquidations a CVL is initiated by company directors and provides more control over the closing down process for the directors and shareholders+.
Last Updated: 23/04/2025
What is a company voluntary liquidation (CVL)?
A company voluntary liquidation (CVL) is a formal insolvency procedure initiated by the directors of an insolvent company. It involves voluntarily winding up the company’s affairs when it can no longer pay its debts as they become due. The process includes appointing a Licensed Insolvency Practitioner to liquidate the company’s assets and distribute the proceeds to creditors. Once complete the Company will get dissolved and get removed from the register at Companies House.
When should a company consider a CVL?
A company should consider entering a CVL when it is insolvent, meaning it cannot pay its debts as they fall due or its liabilities exceed its assets, and there is no viable prospect of turning the business around and continuing operations. This process allows directors to take control of the situation and address their obligations responsibly.
How do I liquidate a company?
Your company is technically insolvent if it cannot pay its creditors as they fall due such as Coronavirus Business Interruption Loan Scheme (‘CBILS’) or Bounce Bank Loan repayments (‘BBL’) or if its liabilities are more than its assets.
If your company is insolvent one option is a creditors’ voluntary liquidation which effectively ends your responsibilities as a director and uses the company’s remaining assets to pay off your creditors. However, before implementing a creditors’ voluntary liquidation we will first explore all the options to recover your business.
Our expertise in business turnaround can help recover the business if you act quickly. See our top 10 frequently asked questions on creditors’ voluntary liquidation. There may be better options if your company is under threat of liquidation.
Before considering closing down your company talk to us to understand your choices and for a professional assessment of your situation, call us.
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Is liquidation the right option for you?
Check the health of your business with our free business health check tool. Get an indication as to whether your company has what it needs to survive. Includes:
- Company health assessment.
- Types of liquidation that might be available.
- Options & next steps.
What is the process for initiating a CVL?
The CVL process involves several key steps:
- Director resolution: The directors convene a board meeting to conclude that the company is insolvent and decide to propose a voluntary liquidation.
- Shareholder meeting: A general meeting of shareholders is called, and a special resolution (requiring at least 75% approval) is passed to wind up the company voluntarily.
- Appointment of liquidator: A licensed insolvency practitioner is appointed as the liquidator to oversee the winding-up process.
- Notification to creditors: Creditors are informed of the liquidation and can appoint a different Liquidator and appoint a creditors’ committee if desired.
- Asset liquidation and debt repayment: The liquidator collects and sells company assets, distributing the proceeds to creditors in accordance with the statutory order of priority.
- Final reporting and dissolution: Once assets are realised and any surplus distributed to creditors, the liquidator prepares a final report, and the company is formally dissolved.
What happens when a company goes into liquidation?
At McTear Williams & Wood we follow a proven step-by-step procedure to manage the liquidation of your company quickly and efficiently during a creditors’ voluntary liquidation.
- Appointment and assessment – in the first instance you will work with one of our directors or associate directors to understand the
challenges of your current financial situation. - Business rescue evaluation – if we think your company can be saved we will help you do that. If not we will explore with you whether the business can survive in some form.
- Extraordinary general meeting – should the company need to be wound up a meeting of the creditors is called to begin the formal process of winding down the business.
- Function as liquidator – finally we can take an appointment as a liquidator to arrange a fast and efficient sale of your assets and business.
Did you know directors are legally permitted to buy back their business and assets in creditors’ voluntary liquidation? Should you wish we are able to provide you with advice and support on how to purchase your business after a CVL and start trading again.
How to close a business
Use a creditors’ voluntary liquidation (“CVL”), a formal insolvency process to close a limited company which is insolvent. This process involves:
- Appointing an insolvency practitioner, who will manage the company’s affairs.
- Realising the company’s assets – once identified the company’s assets will be sold.
- Repaying creditors out of proceeds from the sale of company assets.
- Closing the company – the insolvency practitioner will ensure the company is closed down properly and dissolved at Companies House.
Why should I consider company voluntary liquidation?
Creditors’ voluntary liquidation (‘CVL’) occurs when directors and shareholders agree to place the company into liquidation because it can no
longer pay its debts and this is the most typical form of liquidation. There are several reasons for and against this form of liquidation but you may wish to consider CVL for the following reasons.
Outstanding debts are written off
If your business is unable to pay its creditors and there are no viable plans to turn the company around it cannot continue trading, then a CVL is generally considered the best way to end trading and tidy up the company’s affairs. Unless you have given personal guarantees, which make you personally liable for the company’s debts you have no legal liability to repay the debt owed by the business. This can include any loan taken out by the business such as a Bounce Back Loan or Coronavirus Business Interruption Loans (CBILS).
Staff can claim redundancy pay
There is some good news. If you’re wondering what happens to employees when your company goes into liquidation whilst they will be made redundant by the liquidator, they may be able to claim redundancy pay and any other statutory entitlements fromthe Government. This includes the directors (although their claims face more hurdles). We guide all directors and employees through every step of the claims process.
Any legal action is parked
Any legal action that your company faces is usually halted once the company enters liquidation.
Relatively low costs
Some Insolvency firms ask to be paid up front (sometimes by the dierctors personally) for the initial CVL work but we don’t. Any professional fees such as fees as an insolvency practitioner are paid from the sale proceeds of the company’s assets.
Avoiding court proceedings
By voluntarily deciding to liquidate your company you can avoid creditors petitioning to wind up your company through the courts which
can take many months.
What are the advantages of a CVL?
Opting for a CVL offers several benefits:
- Control over the process: Directors can proactively manage the company’s insolvency rather than facing compulsory liquidation initiated by creditors.
- Legal protection: Entering a CVL early reduces the risks of directors breaching their duties.
- Employee support: Employees may be eligible to claim redundancy and other statutory entitlements from the National Insurance Fund.
What are the disadvantages of a CVL?
While a CVL can be beneficial, it also has drawbacks:
- Loss of business: The company ceases operations, and its assets are sold, leading to the end of the company.
- However, in the right circumstances the business and assets can be sold, including to the directors/shareholders and so continue to trade.
- Employee redundancies: Staff are laid off, which can have personal and economic impacts.
- Director investigations: The liquidator is required to investigate the conduct of directors preceding the insolvency, which could lead to disqualification if misconduct is found.
- Taking and following advice from an insolvency practitioner should limit the risk of disqualification.
How does a CVL affect company directors?
Directors play a crucial role in the CVL process and must fulfil specific responsibilities:
- Fiduciary duties: Directors must act in the best interests of creditors once the company is insolvent.
- Cooperation with the liquidator: They are required to provide all necessary information and assistance to the appointed liquidator.
- Potential personal liability: If directors are found to have breached their duties they may be held personally liable for company debts.
BUSINESS RESCUE & INSOLVENCY SPECIALISTS
Download your free Directors' guide
This free, easy-to-read guide is designed to help directors whose company is in financial distress. It will assist directors to navigate around insolvency issues and avoid potential pitfalls, split over ten sections this guide walks you through the matters in a logical order you are
likely to need to consider.
What are the negative consequences of company liquidation?
Although CVL’s generally run smoothly there are some potential pitfalls that you need to be aware of along the way and these might include the following.
Wrongful trading accusations
Once appointed your appointed insolvency practitioner is obliged to investigate the conduct of all directors. When BBLs and CBILS are
involved this includes the eligibility for and the use of these funds. In extreme cases actions for wrongful trading and other claims can be
brought against the directors, then you could face serious consequences such as a director ban or even prosecution. If you have taken and followed professional advice this is much less likely.
Personal liability for company debt
If you’ve given a personal guarantee to a lender of any kind then you could wind up being personally liable for the business debt. If an agreement cannot be reached to satisfy the debt then it is a creditor’s right to enforce this guarantee should they wish. This will also apply if you gave a personal guarantee to the lender for a CBIL too.
All business assets will be sold
Any asset belonging to the business must be sold off to provide funds to creditors where possible to do so.
Free advice line for distressed company directors > 08003317417
How long does it take to liquidate a company?
There are several steps that need to be taken during any type of liquidation and it’s important to consider that these steps may take longer
than you think:
- Appointing a liquidator make take around 2-4 weeks. However, liquidation can sometimes begin in as little as a week should 90% of
your shareholders agreed to such short notice. - Once the liquidator is appointed they must sell the business assets, perform investigations and file all the necessary paperwork.
- A straightforward liquidation can take six months from start to finish.
How much does it cost to liquidate a company?
Usually at least several thousand pounds – but the directors and shareholders should not pay this personally. The cost gets paid from the
company’s assets.
Director redundancy
A director is always an office holder but may also be classed as an employee of the business and may be entitled to payment from the Redundancy Payments Service (“RPS”) for redundancy and other claims such as pay in lieu of notice, arrears of wages and holiday pay once the company enters into a formal insolvency process. To qualify the director must:
1. Have a formal contract of employment.
2. Have worked for the company for at least two years to qualify for redundancy pay.
3. Have been paid at least the National Minimum Wage.
4. Have worked at least 16 hours per week and been paid a salary via PAYE.
5. Have had a useful and ongoing role in the running of the company.
6. Not have an overdrawn director’s loan account owed to the company prior to the insolvency process.
If eligible the director may receive up to eight weeks of unpaid wages, six weeks of holiday pay, notice pay equivalent to one week’s notice for each fully year of employment and if he/she has more than 2 year’s service redundancy pay of up to one and a half weeks for each year of service.
What alternatives exist to a CVL?
Companies facing financial difficulties might consider other options before proceeding with a CVL:
- Informal negotiations: Engaging directly with creditors to renegotiate terms and seek more manageable repayment plans.
- Refinancing or an operational turnaround.
- Company voluntary arrangement (CVA): An agreement with creditors to repay debts over time while continuing operations.
- Administration: A process that provides protection from creditors while restructuring the company to improve its financial position.
FAQ's
How do I shut down my business?
If your company is insolvent and cannot afford to repay its debts the correct course of action to achieve company closure is to opt for a formal insolvency process such as a creditors’ voluntary liquidation, this will enable you to effectively shut down an insolvent business. An insolvency practitioner will be appointed to liquidate the company and realise the assets and use the proceeds of these sales to repay the company’s creditors. Proper management of assets and debts is important to avoid legal disputes with creditors.
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If your company is struggling with unmanageable debts, decreased cashflow or concerns about about your company’s future, we can assess your situation and provide you with tailored solutions and options.
During your free initial advice meeting, we will discover a true picture of your company’s financial situation
and offer practical and expert guidance on your next steps.
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