CVL Process
If your limited company cannot pay its debts and there is no realistic prospect of recovery, a Creditors’ Voluntary Liquidation (CVL) may be an appropriate way to close the business.
A CVL is a formal insolvency procedure initiated by the company’s directors and shareholders. A licensed insolvency practitioner is appointed as liquidator to take control of the company, deal with its assets and creditors, review the company’s affairs and ultimately bring it to an end.
This guide focuses specifically on how the CVL process works, from the initial decision through to the company’s eventual dissolution.
For a broader overview of costs, director consequences and alternatives, read our full Creditors’ Voluntary Liquidation guide.
Quick Answer
The CVL process usually begins when directors establish that the company is insolvent and decide that liquidation is the appropriate option. Company information is prepared, shareholders vote to wind the company up, creditors are formally notified and a licensed insolvency practitioner is appointed as liquidator. The liquidator then deals with company assets, creditor claims and director conduct before completing the liquidation and closing the company.
The CVL Process at a Glance
A Creditors’ Voluntary Liquidation typically follows 11 key steps, from recognising that the company is insolvent through to the company’s eventual dissolution.
The exact circumstances vary from company to company, but the process generally follows this sequence:
- Directors establish that the company is insolvent
- Directors speak to an insolvency practitioner
- Company information is gathered
- Directors decide to proceed with the CVL
- Shareholders approve the liquidation
- Creditors are formally notified
- The liquidator is appointed
- Company assets are realised
- Creditor claims are reviewed
- The company’s affairs and director conduct are reviewed
- The liquidation is completed and the company is dissolved
Step 1: Directors Establish That the Company Is Insolvent
The process usually starts when the directors recognise that the company can no longer continue in its current financial position.
Warning signs might include:
- persistent HMRC arrears
- suppliers or lenders demanding payment
- missed loan or finance repayments
- unpaid wages
- County Court Judgments
- statutory demands
- a winding-up petition
- severe cash-flow problems
- liabilities exceeding company assets
- the company repeatedly borrowing simply to meet existing debts
At this stage, directors should establish whether the company can realistically recover or whether continuing to trade risks making the position worse.
Trading while insolvent is not automatically wrongful trading. However, once insolvency becomes likely, directors need to pay particular attention to creditor interests and avoid unnecessarily increasing creditor losses.
Our guide to director duties when facing insolvency explains these responsibilities in more detail.
Step 2: Directors Speak to an Insolvency Practitioner
A CVL must be handled by a licensed insolvency practitioner.
The insolvency practitioner will review the company’s circumstances and establish whether liquidation is appropriate or whether another solution remains realistic.
This initial review may cover:
- company debts
- HMRC arrears
- company assets
- bank balances
- outstanding invoices
- employees
- loans and finance
- leases
- personal guarantees
- director’s loan accounts
- recent payments or transactions
- whether the business is still trading
Directors should understand the available options before committing to liquidation.
Where the underlying business remains viable, alternatives such as refinancing, an HMRC Time to Pay arrangement, a Company Voluntary Arrangement or administration may still be considered.
If CVL is the appropriate route, the formal liquidation process can then begin.
Step 3: Company Information Is Gathered
The insolvency practitioner will need detailed information about the company.
This commonly includes:
- a complete creditor list
- amounts owed to each creditor
- company bank balances
- company assets
- stock
- vehicles and equipment
- outstanding invoices
- employee and payroll information
- HMRC details
- finance agreements
- leases
- company accounts
- accounting records
- director loan accounts
The information is used to establish the company’s financial position and prepare the documentation required for the liquidation.
Directors should provide records that are as complete and accurate as possible.
Missing records or unexplained transactions can delay the process and may require further investigation later.
Step 4: Directors Decide to Proceed With the CVL
Once the company’s circumstances have been reviewed, the directors decide whether to proceed with liquidation.
This is normally recorded formally through the company’s decision-making process.
The directors should be satisfied that they understand:
- why the company is insolvent
- why liquidation is considered appropriate
- whether realistic rescue alternatives have been considered
- what the CVL means for creditors, employees and directors
The process then moves towards formal shareholder approval.
If directors reconsider before the winding-up resolution is passed, see whether a CVL can be stopped or withdrawn.
Step 5: Shareholders Approve the Liquidation
A company cannot enter CVL solely because the directors decide to liquidate it.
Shareholders must approve the winding up.
At least 75% by value of the shareholders voting must agree to pass the winding-up resolution.
In many owner-managed businesses, the directors are also the shareholders, which can make this stage relatively straightforward.
Once the resolution has been passed, it must be:
- sent to Companies House within 15 days
- advertised in The Gazette within 14 days
These are formal parts of the winding-up procedure.
Step 6: Creditors Are Formally Notified
Creditors must be informed of the liquidation.
They are provided with information about the company’s financial position and the proposed insolvency process, and are given the opportunity to participate in the relevant creditor decision procedures.
Modern insolvency procedures mean a traditional physical creditors’ meeting is not automatically required.
The purpose of this stage is to ensure creditors are properly informed and able to exercise the rights available to them within the liquidation.
Creditors can include:
- HMRC
- suppliers
- lenders
- landlords
- finance companies
- employees
- contractors
- customers owed money
- other parties with valid claims against the company
Step 7: The Liquidator Is Appointed
Once the formal requirements have been completed, the licensed insolvency practitioner is appointed as liquidator.
At this point, control of the company passes away from the directors.
The liquidator becomes responsible for matters including:
- securing company assets
- realising assets
- recovering outstanding invoices
- reviewing creditor claims
- communicating with creditors
- distributing available funds
- investigating the company’s financial affairs
- considering director conduct
- completing the statutory requirements of the liquidation
The Insolvency Service specifically identifies asset realisation, investigation of the reasons for insolvency and director-conduct reporting as part of the liquidator’s role.
Directors must cooperate with the liquidator and provide information and company records when requested.
Step 8: Company Assets Are Realised
The liquidator identifies and realises assets belonging to the company.
These might include:
- cash held in company accounts
- stock
- vehicles
- machinery and equipment
- property
- intellectual property
- outstanding invoices
- money owed to the company
- other company-owned assets
“Realising” an asset generally means converting its value into funds that can be used within the liquidation.
The liquidator is responsible for securing and realising company assets for the benefit of creditors.
Available funds are used to meet liquidation costs and creditor claims in accordance with the statutory order of priority.
Where there are insufficient assets, creditors may receive only part of what they are owed or, in some cases, nothing.
Step 9: Creditor Claims Are Reviewed
Creditors are invited to submit details of the amounts they are owed to the company.
The liquidator reviews these claims and may request supporting evidence where necessary before deciding whether a creditor’s claim should be admitted for the purposes of the liquidation.
This process establishes who is entitled to participate in any distribution of available funds.
Where sufficient funds are available after the costs and expenses of the liquidation have been met, payments are made to creditors according to the statutory order of priority.
In many insolvent companies, there are not enough assets to repay all creditors in full. Some unsecured creditors may therefore receive only a proportion of what they are owed, or no distribution at all.
Find out more about who gets paid first when a company enters liquidation.
Step 10: The Company’s Affairs and Director Conduct Are Reviewed
An investigation of the company’s affairs and director conduct forms part of an insolvent liquidation.
This does not mean wrongdoing is assumed.
The liquidator may consider issues including:
- company accounting records
- how company assets were dealt with
- payments involving directors or connected parties
- director loan accounts
- the treatment of creditors
- transactions before liquidation
- the use of company funds
- the circumstances that led to insolvency
Most directors whose businesses have simply failed should not assume that liquidation automatically means personal liability or disqualification.
Our director liquidation guide covers the potential consequences in detail.
Step 11: The Liquidation Is Completed and the Company Is Dissolved
The liquidation continues until the liquidator has completed the necessary work.
This can include:
- finalising asset realisations
- collecting money owed to the company
- dealing with creditor claims
- making distributions where funds are available
- resolving outstanding issues
- completing investigations
- issuing final reports
- making the required filings
Once the liquidation has been completed, the company is eventually dissolved and removed from the Companies House register.
At that point, the company ceases to exist as a legal entity.
Flowchart: The CVL Process at a Glance
What Happens to Employees During the CVL Process?
Employees are commonly made redundant where an insolvent company stops trading and enters liquidation, although the circumstances of individual companies can vary.
Eligible employees may be able to claim statutory payments such as redundancy pay, unpaid wages, holiday pay and notice pay through the Redundancy Payments Service.
This is a separate area in its own right, so see our full guide to what happens to employees when a company goes into liquidation.
How Long Does the CVL Process Take?
The time required to place a company into CVL is different from the time required to complete the entire liquidation.
The initial process can often move relatively quickly once the necessary company information is available.
The full liquidation may continue much longer depending on factors such as:
- assets
- creditor claims
- outstanding invoices
- director loan accounts
- investigations
- tax matters
- disputes
For a detailed breakdown, see our Creditors’ Voluntary Liquidation timeline.
How Much Does the CVL Process Cost?
CVL fees depend on the circumstances of the company and the amount of work required.
Factors can include the number of creditors, company assets, employees, accounting records and the complexity of the liquidation.
Rather than duplicating the full cost information here, see:
What Should Directors Avoid Before a CVL?
Directors should be particularly careful about decisions made once the company is insolvent or approaching insolvency.
Depending on the circumstances, areas requiring caution can include:
- taking on new liabilities where there is no realistic prospect of repayment
- paying one creditor in preference to others without proper justification
- transferring company assets below their proper value
- transferring assets or business activity to a connected company without appropriate valuation or advice
- withdrawing company money for personal use
- paying dividends where there are insufficient distributable profits
- failing to maintain company records
- disposing of assets without documenting the transaction
- ignoring escalating creditor action
The correct course of action depends on the circumstances of the company, so directors should take professional advice rather than attempting to move assets or restructure debts themselves.
Frequently Asked Questions About the CVL Process
What does CVL stand for?
CVL stands for Creditors’ Voluntary Liquidation. It is a formal insolvency procedure used to close a company that cannot pay its debts.
Who starts the CVL process?
The process is initiated by the company’s directors and requires shareholder approval. At least 75% by value of shareholders voting must agree to the winding up.
Does a CVL need a court hearing?
Normally, no. A CVL is a voluntary insolvency procedure initiated by the company rather than a winding-up process started through the court by a creditor.
Do directors have to attend a creditors’ meeting?
A traditional physical creditors’ meeting is not normally required. Creditor participation is generally handled through the formal decision procedures available under insolvency law.
How quickly can a CVL be set up?
A CVL can often be arranged relatively quickly once the necessary information has been gathered, but the exact timing depends on the company and the formal procedures required.
See our CVL timeline for more detail.
What happens to the directors when the liquidator is appointed?
Directors lose their normal control over the company and must cooperate with the liquidator.
Liquidation does not automatically mean the directors become personally liable for company debts or are prohibited from becoming directors again.
Read what happens to directors in liquidation for the full explanation.
What happens to employees in a CVL?
Employees are commonly made redundant where the business stops trading, although circumstances vary.
Eligible employees may be able to claim statutory payments through the Redundancy Payments Service.
Does CVL write off company debts?
Where there are insufficient company assets, some creditor claims may remain unpaid when the liquidation is completed.
Those debts do not normally transfer automatically to directors, although personal guarantees, director loan accounts or personal claims can create separate liabilities.
Get Help With the CVL Process
If your company cannot pay HMRC, suppliers, lenders or other creditors, taking advice early can help you establish whether CVL is actually the right option.
Business Helpline can help you understand:
- whether the company is insolvent
- whether rescue remains realistic
- how the CVL process would work
- what information will be required
- the likely effect on directors and employees
- the potential cost of liquidation
- personal guarantees and director loan accounts
- alternatives to liquidation
Call Business Helpline on 0800 088 2142 for a free and confidential discussion about your company.
