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What is a Creditors’ Voluntary Liquidation (CVL)?

Creditors’ Voluntary Liquidation – or CVL – is a way of bringing an insolvent limited company to a formal end.

As the name suggests, a Creditors’ Voluntary Liquidation is a voluntary process entered into by the directors of an insolvent company under the guidance of a licensed insolvency practitioner. Liquidation by way of a CVL is a big step to take and it is therefore only usually considered when all options for rescuing the business have been exhausted.

As part of the CVL process, all assets belonging to the company will be liquidated for the benefit of creditors with any debt which remains outstanding at this point written off with the exception of any borrowing which has been personally guaranteed. The company will then be struck off the register held at Companies House and the company will cease to exist as a legal entity.

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How the CVL process works

  1. Directors seek the services of a licensed insolvency practitioner – As a formal insolvency process governed by the laws set out in the Insolvency Act 1986, a company can only enter a CVL under the guidance of a licensed insolvency practitioner who will act as the company’s liquidator. Once a company becomes insolvent, or when its directors believe insolvency is on the horizon, there is a legal responsibility to place the interests of outstanding creditors at the forefront. In practice, this means obtaining advice from a licensed insolvency practitioner who will be able to independently assess the position of the company and suggest the potential routes forward.
  1. Options are considered – As a CVL brings about the end of a company, this option is often seen as a last resort for company directors who are keen to continue running their business. There are a number of formal and informal options for those company’s where rescue is possible; these include administration and Company Voluntary Arrangements (CVA). However, in some instances, the company’s financial and operational problems will have taken it beyond the point of rescue, and at this point liquidation is often the best option for all concerned.
  1. Company enters into voluntary liquidation via a CVL – Once it has been determined that placing the company into voluntary liquidation is the most appropriate solution, the insolvency practitioner will be formally appointed as the insolvent company’s liquidator, and the process of winding the company up will begin. Once an insolvency practitioner has been appointed, control of the company passes to the insolvency practitioner; the company directors no longer have the power to control the affairs of the business. All known creditors will be informed of the proposed liquidation and a notice will also be advertised in the Gazette.
  1. Company assets identified and liquidated for the benefit of creditors – when a company is liquidated, all assets belonging to the company will be identified and located by the appointed insolvency practitioner, before being liquidated (i.e. sold). The money realised from this process will then go towards paying back outstanding creditors as far as possible according to the payment hierarchy set out in the Insolvency Act 1986. As a CVL is a process designed for insolvent companies, there is unfortunately going to be a shortfall between how much money can be realised from the sale of company assets and how much money is owed in total to creditors of the company. Any debt which remains outstanding after the CVL will be written off as part of the process, with the directors having no liability to repay this in the vast majority of cases. The exception to this is if any borrowing has been secured by a personal guarantee. If a personal guarantee has been given, this will crystalise at the point of liquidation and the responsibility for repaying this borrowing will fall to those who signed the personal guarantee.
  1. Company will be liquidated – Once all company assets have been liquidated and creditors repaid as far as possible, the appointed insolvency practitioner will then commence the process of winding the company up and bringing the CVL to a close. This will involve having the company’s name removed from the register held at Companies House.

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What happens after the CVL process has completed?

Following the conclusion of a CVL, the company’s name will be removed from the Companies House register and at this point, the company will no longer exist as a legal entity. Any debts (unless personally guaranteed) will be wiped out and these can no longer be chased by creditors. In the majority of case, the company’s former directors will be free to incorporate a new limited company if they wish.

If you are considering incorporating a new limited company following a CVL, you should obtain advice from your appointed licensed insolvency practitioner to check for any restrictions you may face particularly if you intend to recommence business in the same or a very similar field.

Take our 60 Second Test to understand your options

There are three main ways to close a company in Scotland. Taking our 60 Second Test will help our advisers identify the correct route forward for you and your company.

While all three closure options have their advantages and disadvantages, the right one for you will depend on a number of factors including the current financial position of the company and your plans for the future.


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Contact the Scotland Liquidators Team

There are several options when it comes to closing a limited company and it is vitally important you choose the one which is right for you, your company, and your creditors. Whether you are struggling with rising costs, falling trade, or impatient creditors, we are here to help.

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