When a business is struggling with unmanageable debt, a Creditors’ Voluntary Liquidation (CVL) offers a responsible and structured way to close. It makes sure directors fulfil their legal duties while protecting creditors’ interests and giving you the chance of a fresh start.
When is liquidation a viable option?
If your company can no longer pay its debts and has no realistic prospect of recovery, liquidation could be the best course of action. A CVL allows directors to take control of the process, rather than waiting for creditors to force the company into compulsory liquidation [link to page].
The formal nature of the Creditors’ Voluntary Liquidation process means that you’ll have a licensed insolvency practitioner by your side, making sure that all your legal obligations are met. This reduces the risk of personal liability.
Signs that Creditors’ Voluntary Liquidation may be necessary include:
- Mounting unpaid debts
- A decline in cash flow with no way to recover
- Creditor pressure and legal threats
- Inability to pay Bounce Back Loans or other liabilities
- HMRC arrears or unpaid staff wages
If any of these apply to your business, the key is to seek help early. The sooner you contact us, the more options you’ll have. Speak to our expert team today.
Using CVL to clear Bounce Back Loan debt
Many directors took out a Bounce Back Loan (BBL) hoping to recover, but have now found that they can’t afford to repay it. If your company can’t pay its BBL, liquidation could help you move forward. You shouldn’t be personally liable for the debt, as BBLs didn’t require personal guarantees.
As a director, you’ll need to show that you used the loan properly and acted responsibly. Then a Creditors’ Voluntary Liquidation (CVL) can be used to address outstanding debts, including a BBL, and close your company—giving you a fresh start.
What happens in Creditors’ Voluntary Liquidation?
Creditors’ Voluntary Liquidation is a structured process overseen by a licensed insolvency practitioner, so that it’s compliant with UK insolvency laws and protects your directors from legal liabilities. These are the steps a CVL follows:
Step 1 // Identifying insolvency
You need to confirm that the company is insolvent by assessing your cash flow and balance sheets. This is where professional advice can be helpful.
Step 2 // Appointing a licensed insolvency practitioner
After getting a clear idea of your options and deciding on a CVL, you’re legally required to appoint a licensed insolvency practitioner to oversee the liquidation.
Step 3 // Selling assets
We’ll take control of the company’s assets, which are then valued and sold. We’ll then distribute the proceeds among creditors based on their priority in the insolvency process.
Step 4 // Distributing funds
We use the funds generated from the sale of assets to repay creditors. We pay secured creditors are first, followed by unsecured creditors and shareholders.
Step 5 // Dissolving the company
Once all assets are sold and debts settled as far as possible, the company is officially dissolved and removed from the Companies House register.
If you’re unsure whether liquidation is the right step, we can provide a clear assessment of your options. Speak with our team today for honest, professional advice tailored to your business situation.
What happens to creditors in liquidation?
Creditors are informed of the Creditors’ Voluntary Liquidation and given an opportunity to submit claims for what they’re owed. It’s your insolvency practitioner’s responsibility to distribute funds to them, from the liquidated assets. The priority for repayment currently follows this order:
- Secured creditors – Those with fixed charges over company assets, such as banks or mortgage lenders.
- Employees – Unpaid wages, holiday pay and other entitlements are prioritised. They may also be able to claim payment of employee entitlements from the government
- HMRC – Outstanding tax liabilities are treated as secondary preferential claims.
- Floating charge creditors – Lenders with security over changing assets like stock and work in progress.
- Unsecured creditors – Suppliers, contractors and customers owed money by the company.
What are a director’s responsibilities during CVL?
When a company enters Creditors’ Voluntary Liquidation, directors have specific legal duties. These needs to be followed to make sure the process is conducted correctly and in compliance with insolvency law. These responsibilities include:
- Ceasing trade and preserving assets – Directors must stop trading immediately and protect the company’s for assets creditors.
- Acting in creditors’ best interests – Once the insolvency is confirmed, directors must prioritise creditors over shareholders and take no actions that could make the financial position of creditors worse.
- Cooperating with the liquidator – Directors are required to provide all necessary company records, financial statements and explanations about the company’s affairs to their appointed liquidator.
What happens after Creditors’ Voluntary Liquidation?
Once the liquidation is complete, the company ceases to exist and directors are free to make a fresh start. In most cases directors can start a new business—this is commonly called phoenixing. But certain restrictions do apply, such as using the same or a similar company name.
Take control of your company’s debts—today.
We understand that dealing with your company’s debts can be stressful. Many directors worry about personal liability, creditor claims and compliance during liquidation.
Our team is here to help you understand your legal obligations and guide you through the CVL process, reducing stress and uncertainty. Contact us today for a free, no-obligation consultation.
