A Creditors’ Voluntary Liquidation (CVL) and a Members’ Voluntary Liquidation (MVL) both close a limited company through a formal liquidation process, but they are used in very different circumstances.
The key difference is solvency:
A CVL is used when a company is insolvent and cannot pay its debts.
An MVL is used when a company is solvent, can pay its debts in full and its shareholders want to close it.
In a CVL, available company assets are primarily used to repay creditors. In an MVL, creditors are paid in full before the remaining value is distributed to shareholders.
Quick Answer: CVL vs MVL
CVL = insolvent company. The business cannot pay its debts and is voluntarily placed into liquidation by its directors and shareholders.
MVL = solvent company. The business can pay all of its debts and is being closed voluntarily, often because the owners are retiring, restructuring or no longer need the company.
CVL vs MVL Comparison
| CVL | MVL | |
|---|---|---|
| Full name | Creditors’ Voluntary Liquidation | Members’ Voluntary Liquidation |
| Company position | Insolvent | Solvent |
| Can company pay its debts? | No | Yes, normally within 12 months |
| Main purpose | Close an insolvent company | Close a solvent company |
| Who initiates it? | Directors/shareholders | Directors/shareholders |
| Licensed insolvency practitioner required? | Yes | Yes |
| Who receives company assets? | Primarily creditors | Creditors first, then shareholders |
| Declaration of Solvency required? | No | Yes |
| Director conduct reviewed? | Yes | Not in the same way as an insolvent liquidation |
| Typical situation | Company can no longer continue because of debt | Retirement, restructuring or extracting retained value |
What Is the Main Difference Between a CVL and an MVL?
The fundamental difference is whether the company is solvent or insolvent.
An MVL can only be used where the directors believe the company will be able to pay all of its debts, including interest, within a maximum period of 12 months.
The directors must make a formal Declaration of Solvency based on an assessment of the company’s assets and liabilities.
A CVL applies where the company cannot pay its debts and there is no realistic route to continuing the business in its existing form.
If your company is struggling with HMRC, suppliers, loans or other debts, read our full guide to Creditors’ Voluntary Liquidation.
If the company is solvent and you simply want to close it, our Members’ Voluntary Liquidation guide explains the alternative process.
When Is a CVL Used?
A CVL is used when a limited company is insolvent and its directors decide that liquidation is the appropriate way to close the business.
A company may be insolvent because:
- it cannot pay debts when they fall due;
- its liabilities exceed its assets;
- HMRC arrears have become unmanageable;
- suppliers or lenders are pursuing unpaid debts;
- cash flow has deteriorated beyond recovery;
- continuing to trade would risk increasing creditor losses.
To enter a CVL, at least 75% of shareholders by value must approve the winding-up resolution, after which creditors are notified and a licensed insolvency practitioner deals with the liquidation.
The liquidator will realise company assets, deal with creditor claims and review the reasons for the insolvency and the conduct of the directors.
For the individual stages, see our guide to the Creditors’ Voluntary Liquidation process.
When Is an MVL Used?
An MVL is used where a company is financially healthy but its owners want to close it.
Common reasons include:
- retirement;
- the owners no longer wishing to run the business;
- restructuring a group of companies;
- closure of a personal service company;
- releasing accumulated cash or assets to shareholders.
The company must be able to pay its debts in full within 12 months.
Directors must review the company’s financial position and provide a Declaration of Solvency before the MVL proceeds. A licensed insolvency practitioner is then appointed as liquidator.
Who Gets Paid in a CVL and an MVL?
This is another major difference.
In a CVL
The company does not have enough money to pay everyone in full.
The liquidator collects and sells company assets and distributes available funds according to the statutory order of priority.
Creditors may therefore receive only part of what they are owed, and in some cases unsecured creditors receive little or no return.
In an MVL
The company is solvent.
Its creditors must be paid in full before the remaining assets are distributed to shareholders.
This is why an MVL is primarily a shareholder exit procedure, whereas a CVL is an insolvent closure procedure.
What Happens to Directors in a CVL Compared With an MVL?
Directors lose control of the company once a liquidator is appointed in either procedure.
However, the director implications are more significant in a CVL because the company is insolvent.
As part of a CVL, the liquidator considers the reasons for the company’s failure and reports on director conduct to the Insolvency Service.
That does not mean directors are automatically accused of wrongdoing.
Most directors of failed companies are not personally responsible for company debts simply because the company became insolvent.
Issues can arise where there are matters such as:
- personal guarantees;
- overdrawn director’s loan accounts;
- wrongful trading;
- fraudulent trading;
- misfeasance;
- transactions that improperly disadvantaged creditors.
Our guide to what happens to a director when a company goes into liquidation explains these issues in detail.
With an MVL, the company is solvent, so the same insolvent-company conduct reporting process does not apply.
The primary aim of CVL is to facilitate a fair distribution of the company’s assets to its creditors, thereby minimising the financial harm to all involved parties and ensuring that the company exits the market responsibly.
Is a CVL or MVL Cheaper?
The cost of either procedure depends on the company’s circumstances, the number of creditors or shareholders, the assets involved and the amount of work required from the insolvency practitioner.
An MVL can sometimes be relatively straightforward where the company has cash in the bank, few liabilities and a simple shareholder structure.
A CVL may involve considerably more work because the liquidator has to deal with creditors, realise assets, investigate the company’s failure and complete statutory reporting.
Rather than choosing between a CVL and MVL based on price, the company’s solvency determines which procedure is appropriate.
What About Tax?
Tax is generally a much bigger consideration in an MVL because remaining company assets are being distributed to shareholders.
Distributions made through an MVL are generally treated as capital rather than ordinary dividend income, although the precise tax treatment depends on the shareholder’s circumstances and current tax rules.
A CVL has a different purpose: the company is insolvent and available assets are primarily required to meet creditor claims.
Directors considering an MVL should take appropriate tax advice before placing the company into liquidation.
Can an MVL Turn Into a CVL?
Directors lose control of the company once a liquidator is appointed in either procedure.
However, the director implications are more significant in a CVL because the company is insolvent.
As part of a CVL, the liquidator considers the reasons for the company’s failure and reports on director conduct to the Insolvency Service.
That does not mean directors are automatically accused of wrongdoing.
Most directors of failed companies are not personally responsible for company debts simply because the company became insolvent.
Issues can arise where there are matters such as:
- personal guarantees;
- overdrawn director’s loan accounts;
- wrongful trading;
- fraudulent trading;
- misfeasance;
- transactions that improperly disadvantaged creditors.
Our guide to what happens to a director when a company goes into liquidation explains these issues in detail.
With an MVL, the company is solvent, so the same insolvent-company conduct reporting process does not apply.
What Happens if Unexpected Creditors Appear During an MVL?
Directors should identify all known and reasonably foreseeable liabilities before making a Declaration of Solvency.
However, an unexpected creditor or liability can sometimes emerge after the liquidation begins.
For example:
HMRC liabilities
A tax enquiry or previously underestimated liability may increase the amount owed.
Legal claims
An unresolved contractual dispute could become an enforceable liability.
Employee claims
Historic employment liabilities may emerge.
Guarantees or contingent liabilities
An obligation that was not expected to become payable may crystallise.
If these liabilities mean the company can no longer pay all creditors in full, the liquidator must deal with the company on the basis of its actual financial position rather than continuing to treat it as solvent.
This is why accurate accounts and a thorough review of liabilities are important before starting an MVL.
What Is a Declaration of Solvency?
A Declaration of Solvency is a formal statement made by the directors as part of an MVL.
Directors must assess the company’s assets and liabilities and state that they believe the company will be capable of paying its debts, including interest, within a period not exceeding 12 months.
It should therefore never be treated as a formality.
Before making the declaration, directors should consider:
- HMRC liabilities;
- trade creditors;
- loans and finance;
- employee liabilities;
- leases;
- legal disputes;
- contingent liabilities;
- outstanding professional fees;
- likely liquidation expenses.
If there is genuine uncertainty over whether every liability can be paid, professional advice should be taken before proceeding with an MVL.
Unsure Whether Your Company Needs a CVL or MVL?
The first question is straightforward:
Can the company pay all of its debts?
Yes
An MVL may be appropriate if the shareholders want to close the company and distribute the remaining assets.
No
An MVL is not appropriate. If the company is insolvent and needs to close, a CVL may be the appropriate procedure.
If the company is still potentially viable but experiencing financial difficulty, liquidation may not necessarily be the only option.
Alternatives can include:
- refinancing;
- negotiating with creditors;
- HMRC Time to Pay;
- a Company Voluntary Arrangement;
- administration;
- restructuring.
Our guide to closing a limited company explains the wider options available to directors.
Frequently Asked Questions
What is the difference between a CVL and an MVL?
A CVL closes an insolvent company that cannot pay its debts. An MVL closes a solvent company that can pay its debts in full.
Is an MVL an insolvency procedure?
An MVL is a formal liquidation procedure but is used for solvent companies rather than businesses that cannot pay their debts. GOV.UK describes CVL and compulsory winding up as alternative liquidation processes for companies that are not solvent.
Can I choose between a CVL and an MVL?
Not simply according to preference. The company’s financial position determines which procedure is available. An MVL requires the company to be solvent and capable of paying its debts within 12 months.
Can an insolvent company use an MVL?
No. An MVL requires a Declaration of Solvency. If a company cannot pay its debts, an insolvent procedure such as a CVL may be more appropriate.
Can a solvent company use a CVL?
A CVL is designed for a company that cannot pay its debts. A solvent company whose shareholders simply want to close it would normally consider an MVL or another solvent closure route.
Can an MVL become insolvent?
Yes. Unexpected creditors, tax liabilities, legal claims or other liabilities can mean that a company initially thought to be solvent can no longer pay its creditors in full.
Do directors get investigated in an MVL?
An MVL does not involve the same statutory director-conduct reporting associated with an insolvent CVL. In a CVL, the liquidator considers director conduct and submits a conduct report to the Insolvency Service.
Which is better, a CVL or MVL?
Neither is inherently better. They solve different problems. An MVL closes a solvent company; a CVL closes an insolvent company.
Unsure Whether Your Company Needs a CVL or MVL?
The distinction between the two usually comes down to whether your company can realistically pay everything it owes.
If you are unsure whether the company is solvent, or liabilities are beginning to exceed the funds available, getting advice before taking action can prevent you from starting the wrong closure process.
Business Helpline can review your company’s position and explain whether a CVL, MVL or an alternative solution is more appropriate.
Contact us for a free and confidential discussion about your options.
