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Advantages and Disadvantages of CVL

Advantages and disadvantages of creditors voluntary liquidaton

Introduction

Creditors Voluntary Liquidation (CVL) is a formal insolvency procedure where an insolvent company is voluntarily wound up by its directors with the help of licensed insolvency practitioners.

This process can provide various benefits and drawbacks to directors, shareholders, and creditors.

Advantages of CVL

  1. Debt Relief: CVL allows a company to write off its unsecured debts, providing significant relief to directors who can then move forward without the burden of these debts.
  2. Legal Action Ceases: Once a company enters CVL, all legal actions, including County Court Judgements (CCJs) and Winding-Up Petitions, are halted, providing immediate relief from creditor pressure.
  3. Control Over Liquidation: Directors can choose their own insolvency practitioner to handle the liquidation process, allowing them to retain some control over the proceedings and avoid compulsory liquidation.
  4. Potential to Trade Again: Directors can potentially purchase the company’s assets and start a new business, ensuring continuity and saving jobs through a process known as pre-pack liquidation.
  5. Employee Claims: Employees, including directors, may be eligible for statutory entitlements such as redundancy pay, unpaid wages, and holiday pay through the Redundancy Payments Service (RPS).
  6. Reduced Accusations of Wrongful Trading: Entering CVL proactively can demonstrate that directors are prioritising creditor interests, reducing the risk of wrongful trading accusations during the insolvency investigation.
  7. Lease and Contract Termination: Lease agreements and other contractual obligations can be terminated, preventing further liabilities and financial losses.

Disadvantages of CVL

  1. Loss of Business: All business operations cease, and employees are made redundant, which can have a significant impact on the workforce and local economy.
  2. Director Accountability: Directors may be held personally liable for any overdrawn director’s loan accounts and may face restrictions on reusing the company name for a period of five years.
  3. Personal Guarantees: If directors have provided personal guarantees for company debts, they remain liable for these obligations even after the company enters liquidation.
  4. Public Record: The liquidation is recorded on public records, potentially affecting the directors’ credit ratings and future business prospects.
  5. Costs Involved: The process involves professional fees for the insolvency practitioner, which can be substantial and may require assets to be liquidated to cover these costs.

Conclusion

Creditors Voluntary Liquidation (CVL) is a structured process designed to help insolvent companies manage their debts and close operations in an orderly manner.

While it offers numerous advantages such as debt relief, cessation of legal actions, and potential for business continuity, it also presents challenges including loss of business, personal liabilities, and public record implications.

Directors considering CVL should weigh these factors carefully and seek professional advice to navigate the process effectively.

How Business Helpline Can Help

At Business Helpline, we offer expert advice and support to directors considering CVL.

Our licensed insolvency practitioners provide confidential consultations to discuss your company’s situation and help you understand the best course of action.

Contact us today for a free consultation and take the first step towards resolving your financial difficulties.

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    Advantages and Disadvantages of Creditors’ Voluntary Liquidation (CVL)

    Advantages

    Disadvantages

    Debt Relief
    Loss of Business
    Legal Action Ceases
    Director Accountability
    Control Over Liquidation
    Personal Guarantees
    Potential to Trade Again
    Public Record
    Employee Claims
    Costs Involved
    Reduced Wrongful Trading Accusations
    Lease and Contract Termination
    Business Helpline Accreditations
    Andy Slinger

    Andy is Head of Marketing for Business Helpline with a wealth of experience Marketing in the financial sector. He has a passion for helping business owners struggling with debts.