Some helpful information about voluntary liquidation
What is Creditors’ Voluntary Liquidation (CVL)
A Creditors’ Voluntary Liquidation is used to sell any remaining company assets and distribute the funds to your company’s creditors. The advantage of the voluntary liquidation of an insolvent company is that you’ll stop the pressure from creditors and could walk away debt free.
Please be aware that any attempt to strike-off a company that owes money under a government backed loan scheme is being blocked unless the company has been liquidated first.
How Do I know IF My Company’s Insolvent?
There are two main ways to check if your business is insolvent: the cash-flow test and the balance-sheet test. Here’s what each one involves.
The cash-flow test
This test asks a simple question:
Can your company pay its bills on time, as they fall due?
If the answer is no—if you’re regularly missing supplier payments, struggling to pay wages, or falling behind on HMRC bills—your company may be cash-flow insolvent. It doesn’t matter if you have assets on paper; if there’s not enough money in the bank to meet day-to-day commitments, that’s a warning sign.
The balance-sheet test
This test looks at the bigger financial picture:
Are your company’s liabilities greater than its assets?
To pass this test, your business needs to own more than it owes. If the value of your debts (including loans, unpaid taxes, and future liabilities like lease agreements) is greater than the value of your assets (such as cash, stock, property, and equipment), your company could be balance-sheet insolvent.
How do I know if I should liquidate my company?
If you feel like your company is struggling, the earlier you recognise and address the signs of insolvency, the more options you’ll have. These signs might be:
- Consistently late payments to suppliers, HMRC, or employees.
- Mounting pressure from creditors, including legal threats or statutory demands.
- Overdrawn director’s loan account, which could lead to personal liability.
- Relying on new credit to pay off existing debts, creating a cycle of financial distress.
- Negative cash flow, where expenses outweigh income with no recovery in sight.
If your business is showing any of these signs, it’s crucial to seek advice from a licensed insolvency practitioner as soon as possible. Continuing to trade while insolvent can put you at risk of wrongful trading, which may lead to personal liability.
A Creditors’ Voluntary Liquidation (CVL) allows you to close your company compliantly and deal with its debts in the right way.
Is liquidation the only option if my company is insolvent?
Liquidation is not always the only solution for a struggling business. If your company is facing financial difficulties but you have a viable, core business, there may be alternative options available, depending on your circumstances. These include a debt repayment agreement or debt restructuring.
If your business has no chance of recovering, then voluntary liquidation using Creditors’ Voluntary Liquidation (CVL) may be the best course of action to ensure debts are handled correctly and you meet your legal responsibilities.
What Happens to a Director In Liquidation?
If your company can’t pay its debts and enters Creditors’ Voluntary Liquidation (CVL), your first step is to acknowledge the position and appoint a licensed insolvency practitioner.
From there, your role is to cooperate fully, provide all necessary paperwork, and avoid anything that could make the situation worse — like favouring one creditor over another or selling assets too cheaply. The liquidator will carry out a standard review of your conduct, but as long as you’ve acted reasonably and honestly, this is routine.
Can I be a director after liquidation?
Yes. As long as you meet the legal requirements, we could help you to continue your business without the pressure of the company debts. The best way to determine the right solution is to speak to a licensed insolvency practitioner. We offer free, confidential consultations to help you understand your options and take the best path forward.
