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(approximate value of machinery, fixtures, vehicles, stock, customer invoices, etc)

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What is a CVL?

Creditors’ Voluntary Liquidation
It is generally used when the company’s directors choose to voluntarily close the business in a way that is efficient and professional.

  • Quickly stop pressure from creditors
  • An insolvency practitioner will manage assets and payments to creditors
  • The liquidator will make contact with all creditors including HMRC, banks and trade suppliers
  • The liquidator will process employee claims which could allow payments from the government to be made

How does the CVL process work?
The Creditors’ Voluntary Liquidation process, commonly known as CVL, is entered into on a voluntary basis in order to bring a business to an end and wind up the company. In general, a CVL will follow several months of financial distress and when the possibility of a successful turnaround has been exhausted. While a CVL may not be the dream solution for your business, it is a preferred way for an insolvent company with no viable future to bring things to a conclusion for all concerned.

There are two main tests to determine whether a company is insolvent. One is the cash flow test and the other is the balance sheet test. A cash flow test is failed when a company cannot afford to meet its liabilities when they are due. A balance sheet test is failed when liabilities are at such a level that they outweigh the assets. If you have become insolvent, then you need to take steps to mitigate the impact that this can have on your creditors.

No further credit should be obtained and you need to be careful about making payments if you do not have enough funds to pay all creditors. Choosing to pay one creditor over another could lead to further issues. Continuing to trade when you are insolvent is extremely risky as you may become personally liable for trading.

Why a CVL can help when closing down a company
There are several options open to businesses looking to solve insolvency issues. These include administration and CVAs. These aim to help them turnaround struggling businesses, but this is not always the best option.

A CVL brings the company to a close and deals with the outstanding debts in the process. Assets will be used to provide a return to creditors but there is likely to be a significant shortfall. However, this is written off once the company is liquidated (excepting any personally guaranteed debts).

Why a CVL can help when closing down a company
There are several options open to businesses looking to solve insolvency issues. These include administration and CVAs. These aim to help them turnaround struggling businesses, but this is not always the best option.
A CVL brings the company to a close and deals with the outstanding debts in the process. Assets will be used to provide a return to creditors but there is likely to be a significant shortfall. However, this is written off once the company is liquidated (excepting any personally guaranteed debts).

How to start the CVL process
You can only enter a CVL under the guidance of a licensed insolvency practitioner who will be on hand to give you sound and practical advice. They will also be able to talk through other suitable options.

If a CVL is the most appropriate course of action, then you will need to have a meeting of directors (or have the sole director make decisions). You then need to give notice to shareholders and creditors. After this the liquidation may commence.

After completion of the CVL, the company will cease to exist and will be struck off the register at Companies House.

You can find out more about the CVL and get more insolvency advice by getting in touch with our team.

SimpleLiquidation.co.uk is a regulated insolvency practice

Our liquidators are authorised by the Insolvency Practitioners Association and the Institute of Chartered Accountants in England and Wales. We are not an intermediary, broker or sales company.