Creditors’ Voluntary Liquidation

A Creditors’ Voluntary Liquidation is a process which enables Directors to formally close an insolvent company. A benefit of a CVL is that unlike in a Compulsory Liquidation, directors’ are able to nominate their own Liquidator. The Liquidator once appointed, will deal with realising any assets of the company and making distributions to creditors.

An Insolvency Practitioner at AABRS is able to act as Liquidator of a company in order to assist directors in the formalities of convening both shareholders and creditors meeting at which the company is placed into liquidation.

It is important that directors’ take advice at an early stage, as they need to understand their responsibilities as company directors’ of an insolvent company. to minimise the loss to creditors knowing that the company is insolvent might lead to potential personal liabilities for the company directors’ in the future.

Creditors voluntary liquidation advantages and disadvantagesWhy put a Company into Creditors’ Voluntary Liquidation (CVL)?

Here are the reasons for putting a company into Creditors Voluntary Liquidation:

  • The company may have received a winding up petition or statutory demand from a trade creditor which it cannot pay and therefore wishes to place the company into a Creditors Voluntary Liquidation rather than a Compulsory Liquidation.
  • The company may be insolvent on a balance sheet test, by virtue of its liabilities exceeding the assets of the company. As a result losses are only increasing and without a turnaround in the business’s fortune the Directors are conscious that continuing to trade might infringe on wrongful trading.
  • The company is unable to pay its rent and as a result the landlord has appointed bailiffs to seize the assets of the company.
  • The company has fallen behind on a time to pay agreement with HM Revenue & Customs and as a result the company has been issued a winding up petition.
  • The company may have suffered a substantial bad debt and as a consequence is unable to meet its current liabilities which are now in arrears and trade creditors are now demanding payment.
  • There could be a significant shift within a company’s industry to the extent that it impacts on the ability to trade. For example, a sudden change in industry standards or fluctuations within the market which renders a company’s current principal trading activity loss making.

It is therefore crucial that steps are taken immediately to consult AABRS once it is envisaged that the company is making losses and that it is uncertain as to the future of the business.AABRS offers a free initial consultation to discuss the financial position of the company and assets the current financial position.

What is the Process for Creditors’ Voluntary Liquidation?

Stage 1 – Board of Directors’ Meeting

The Companies Act 2006 provides the mechanism to convene a General Meeting of the shareholders in order to pass a Special Resolution to wind the company up. The process is initiated at a Board of Director’s meeting which will formally appoint AABRS to assist with convening meetings of the shareholders and creditors.

A meeting date is set for both the shareholders and the creditors meetings which ordinarily take place on the same day. The timeframe between the Board of Directors meeting and the shareholder and creditor meetings is usually between 16 and 21 days in order to allow sufficient time for the notices to be served on the company’s creditors.

The meeting will also grant the powers to AABRS to instruct agents; contact the company’s bankers; liaise with HM Revenue & Customs; and obtain financial information from the company’s accountants in order to gather as much financial information about the company.

It is important to note also that this Directors meeting does not necessarily have to be a physical meeting as it can be conducted by virtual means e.g. a skype or facetime meeting.

Stage 2 – The period between the Directors Meeting and the Creditors Meeting

Whilst notices have been issued to creditors and shareholders convening the forthcoming meetings, the company is still formally not yet in liquidation and the directors are still considered as office holders of the company and therefore have a duty to act in the interest of creditors.

During this period of time it is imperative that the Directors assist AABRS in obtaining as much financial information about the company as possible e.g. handover of accounting records. This will assist in the preparation of the report and Statement of Affairs which will be presented at the creditors meeting.

If the company owns various fixed assets, professional agents will be instructed to provide a detailed valuation report on the company’s assets by providing forced sale and going concern values.

It is also likely that AABRS will provide a mechanism whereby employees will be able to submit RP1 forms to the Redundancy Payments Office in relation to arrears of wages, holiday pay, redundancy pay and pay in lieu of notice.

Stage 3 – Shareholders Meeting

Shortly prior to the shareholders meeting, the directors’ sign a Statement of Affairs which is a summary of the assets and the liabilities of the company. This statement is obtained from the financial figures contained within the management accounting records of the company and any valuation reports received from professional agents who would have valued the company’s assets.

The nominated Chairman of the Shareholders meeting is a Director of the company who will present the Statement of Affairs to Shareholders. The shareholders will either be in attendance at the shareholders meeting or alternatively would have sent a proxy form either agreeing or rejecting the proposed winding up resolution.

In order for the winding up resolution to pass, it will require 75% of those sent notice of the shareholders meeting voting in favour of the resolution. In addition, the resolutions will appoint a Shareholders Liquidator from AABRS.

Stage 4 – The Creditors’ Meeting

A Creditors’ Meeting is ordinarily held half an hour or an hour after the Shareholders’ Meeting. Whilst a director is nominated as Chairman of the meeting, an Insolvency Practitioner from AABRS will assist with the formalities of the meeting.

At the Meeting of Creditors’ a report will have been prepared by AABRS summarising the financial position of the company. The report contains various statutory information about the company; extracts of the company’s accounts from the last three financial years; a trading history of the company; the Statement of Affairs together with a list of creditors and a deficiency account.

An opportunity is then given to any creditors who attend the meeting to ask questions of the Director about the trading activities of the company and to express any areas of concern relating to the company to the meeting. In addition, creditors can ask the liquidator to investigate into areas of concern.

The meeting is concluded by proposing resolutions including ratifying and appointing a liquidator of the company. Those creditors not attending would have sent proxy forms to the Chairman notifying them of their voting intention.

An alternative Liquidator might be proposed by creditors; however, voting on the Creditors Liquidator requires a majority of 50% of creditors voting in favour.

Stage 5 – The Company in Liquidation

Once appointed the Liquidator will deal with the formalities of appointment. For example, notifying Companies House and placing an advertisement in the London Gazette.

Depending on the nature and complexity of the case, the liquidator may have to deal with the following matters: –

  • Having instructed professional agents, the liquidator will deal with the formal disposal of company assets
  • An investigation into the company’s books and records by submitting a report to the Insolvency Services within 3 months of appointment
  • Instructing other recovery agent specialists in relation to other assets of the company e.g. book debt agents
  • Claims of former employees at the Redundancy Payments office
  • Should funds be available, the Liquidator will agree creditors’ claims and deal with any distributions to creditors.

The process of the liquidation could take between 6 months to several years depending on the case.

The liquidator has a duty to send progress reports on an annual basis to all creditors and shareholders advising on the progress of the liquidation during that preceding year. These reports are also filed at Companies House.

Stage 6 – The Final Meeting of Members and Creditors

Once all assets have been realised and after costs and expenses, distributions have been made to creditors, the liquidator will take steps to formally convene meetings of both members and creditors with a view to obtain release as liquidator of the company and agree the final receipts and payments.

Once the liquidator has convened these meetings and obtained release the company is dissolved within three months at Companies House.

What the Advantages and Disadvantages of Creditors Voluntary Liquidation?


  • Directors have more control than in a compulsory liquidation
  • Immediate relief from debt and creditor pressure
  • Reduced Risk of Wrongful Trading
  • It may be possible to purchase back assets


  • Any liquidation brings with it a directors investigation
  • Personal Guarantees will be called in
  • The insolvency will be advertised publicly in the London Gazette
  • Shareholders are unlikely to receive any returns

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

The law requires that the liquidator be a qualified insolvency practitioner. IP’s have a duty of care to act in good faith, and to maximise the return for company creditors. The liquidators principle role is to realise the company’s assets and distribute the proceeds to creditors. The Insolvency Practitioner also has wide-ranging powers to investigate directorial conduct and, where appropriate, bring charges of wrongful trading.




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