Step-By-Step Guide to Creditors Voluntary Liquidation

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What is a Creditors’ Voluntary Liquidation (CVL)?

A Creditors’ Voluntary Liquidation (CVL) takes place when a company can no longer pay its debts (it is insolvent) and there’s no chance of the business recovering. The directors may then decide to ‘voluntarily’ apply for liquidation, also known as Creditors’ Voluntary Liquidation (CVL). CVL is a relatively simple process that the company must follow, guided by an experienced licenced Insolvency Practitioner.

When a company is insolvent, the company’s directors have a responsibility to take active steps to address the situation. Rather than the company being forced into liquidation by its creditors, a CVL will ensure that the directors have more control over the process of liquidation. 

Your creditors can make an application to court to close down your company by issuing a ‘winding-up petition’, which can force the company into Compulsory Liquidation

How is the Insolvency Practitioner appointed?

In a Creditors’ Voluntary Liquidation process the directors and shareholders choose and appoint an insolvency practitioner themselves rather than having this forced upon them.

The chosen insolvency practitioner will manage the CVL process and deal with disposing of the company’s assets and communicating with its creditors. After a CVL has begun, the liquidator is in control of the company, becomes the point of contact for all company creditors and manages the different stages of the liquidation. 

What’s the job of a Liquidator in a CVL?

The liquidator must be a qualified and licenced insolvency practitioner, as required by the law. IPs have a responsibility to act in good faith and maximise the return for company creditors. The liquidator’s primary responsibility is to realise the company’s assets and distribute the proceeds to creditors. The licenced insolvency practitioner also has the authority to investigate directors’ conduct and, in certain cases, may take action against directors to recover monies.

If the Insolvency Practitioner finds any information or evidence that suggests the company and its directors have dealt with company assets improperly or carried on trading recklessly when they knew the company was insolvent, the liquidator can take action against the directors and pursue claims to recover funds from them personally. 

The company’s historical accounts will be reviewed, including payments to directors, particularly if directors’ remuneration has been taken as dividends rather than as salary for tax purposes. It is unlawful for an insolvent company to declare dividends to shareholders, so if dividends have been declared and paid whilst the company was insolvent the liquidator will seek to claw back that money for the benefit of the creditors. This will involve pursuing the shareholders personally to recover the payments.

For more information about the role of the liquidator in the liquidation process, check out our blog; Do I Need to Use an Insolvency Practitioner to Liquidate My Company?  

Which Creditors Get Paid First in CVL?

  • Secured Creditors (usually a bank) with a Fixed Charge
  • Preferential Creditors (Employees for certain items)
  • Preferential Creditors (HMRC)
  • Creditors Secured by Floating Charge
  • Unsecured Creditors
  • Shareholders (it is very rare for shareholders to receive any money in an insolvent liquidation).  

Director’s Responsibilities in CVL

Cooperation is important in the process. Directors are no longer in control of the company, but they are required to assist the liquidator if requested. By law, they are accountable to the liquidator and obliged to be transparent about the company’s financial dealings. If the directors have given any personal guarantees to creditors these are likely to be called in once the company goes into liquidation. 

6 Stage Process of Creditors Voluntary Liquidation:

This is a fairly straightforward process which will be guided by an Insolvency practitioner. After the initial consultation with the Insolvency Practitioner, the following steps are taken:

Stage 1. Board of Directors Meeting

For a company to be wound up under the Companies Act 2006, the board of directors must first appoint a licensed insolvency practitioner as a liquidator and then agree to a special resolution at a meeting to authorise this appointment. Shareholders and creditors ordinarily meet on the same day, this meeting must take place within 14 days for there to be sufficient time for the notices to be served to the creditors.

This meeting can be held in person or virtually, via Skype or Zoom, but must give the licensed insolvency practitioner the authority to guide agents, communicate with the company’s bankers, contact HM Revenue and Customs and the opportunity to gather as much financial information as needed from the company accountants. 

Stage 2. The Period Between the Director’s Meeting and the Creditor’s Meeting

Despite notices being issued to creditors and shareholders about the upcoming meeting, the company is still formally not yet in liquidation and so its directors have a duty to act in the interest of creditors.

Most importantly during this time, the directors must make sure they have helped the licensed insolvency practitioner obtain as much financial information including a formal handover of all accounting documents and a detailed valuation of all company assets. This will supply the information needed to draw up a Statement of Affairs to be presented to the creditors in the upcoming meeting. 

Also during this time, the licensed insolvency practitioner will provide a system for employees to submit RP1 forms used to claim redundancy pay and other statutory entitlements including pay in lieu of notice, holiday pay, and arrears of wages.

Stage 3. Shareholders Meeting

Before the meeting convenes a Statement of Affairs must be agreed upon and signed by the directors. The statement includes the information obtained from accounting documents and valuation reports from the company agents.

The shareholders will either be in attendance at the meeting, or they may have delegated someone to act as their proxy to agree or reject on their behalf. The Chairman of the Shareholders Meeting (who is also a board director) will present the Statement of Affairs on behalf of all shareholders and ask for approval for the proposed liquidation solution.

For the liquidation process to begin the vote must be 75% in favour of the proposed resolution and they must appoint a shareholder liquidator from an insolvency practitioner firm. 

Stage 4. The Creditors’ Meeting

The creditor’s meeting will be held on the same day, usually within an hour after the shareholder’s meeting. Alongside the nominated Chairman of the meeting, an insolvency practitioner will be present in the creditor’s meeting.

A report drawn up by the licensed insolvency practitioner outlining the financial position of the company will be prepared for the Meeting of the Creditors. This report will provide the required information about the company including parts of the accounting documents from over the last 3 years, details of the trading history and the agreed-upon Statement of Affairs. Within the Statement of Affairs, there will be a list of creditors and details from the deficiency account. 

Within this meeting, the creditors are entitled to raise questions & concerns about the accounts and trading activity. If concerned, the creditors can ask the liquidator to investigate. To conclude the meeting the creditors will appoint a liquidator and make final resolutions for the company. Proxies will inform the Chairman of the decisions of the creditors they represent. 

Stage 5. The Company in Liquidation

Once the chosen Liquidator is appointed, they will be tasked with dealing with the formalities of their position, for example, notifying the company. Depending on the type of company or the complexity of the situation, the liquidator will face a number of problems. 

  • With professional agents, the liquidator will deal with the formal disposal of assets
  • Investigate the books and records within 3 months of appointment by submitting a report to Insolvency Services.
  • Working with other recovery agents on other assets of the company.
  • Redundancy claims of former employees.
  • If funds are available the creditor’s claims will be dealt with and funds will be distributed accordingly.

The process of liquidation can take between 6 months to several years depending on the size and complexity of the company. Liquidators will also send annual reports to all creditors and shareholders. All reports are filed with Companies House. 

Stage 6. Concluding the Liquidation

Upon completion of the Creditors’ Voluntary Liquidation, the company will be dissolved. The Insolvency Act 1986: sets out an order of priorities. The liquidator will advertise for claims and establish a final cut-off date for paying the creditors. 

They will then take final steps to agree to the final receipts and payments. The company will then be struck off the Companies House register. Any liabilities will be then written off. Any outstanding personal guarantees made by the directors can then still be pursued by the creditor via the guarantor.


  • Creditor’s Voluntary Liquidation gives the directors more control compared to Compulsory Liquidation
  • A Creditors’ Voluntary Liquidation process provides a more immediate relief from debt and pressure from creditors.
  • The company can possibly buy back their assets.
  • Less risk of Wrongful Trading.


  • Directors’ focus and their duties and responsibilities will now be on creditors rather than their shareholders.
  • All liquidation processes begin with an investigation of the dealings and conduct of the directors.
  • Director’s personal guarantees may be called in and will have to be honoured to their creditors.
  • Shareholders are unlikely to receive any return on their investment.
  • The insolvency will be advertised publicly.

The cost of the Creditors’ Voluntary Liquidation process

Fear of the potential costs of voluntary liquidation may cause many directors to postpone the process until they are forced into compulsory liquidation by creditors, a significantly more difficult and expensive scenario in most cases. The first thing to understand is that CVL costs are typically deducted from asset realisation and do not have to come from the directors’ pockets.

The cost of liquidation depends on the complexity of the case, which is based on many factors such as:

  • The size of the company
  • Overall financial situation
  • The number of creditors and shareholders
  • The value of its assets

Can a Creditors’ Voluntary Liquidation be reversed?

Voluntary liquidation is typically chosen as a course of action to avoid impending creditor action, such as a Winding up Petition, which could result in compulsory liquidation. If it became suddenly possible to pay off debts and return the company to solvency, the process could be halted, assuming that company assets had not been liquidated and the company had not been struck off. If the company has been struck off the Companies House register, it can be reinstated through a formal application. This is referred to as administrative restoration.