As a business owner, you will need to know the options you have if your business fall into insolvency. Understanding the advantages and disadvantages of each option will allow you to offer the best advice for your client. In this blog post, we will be revealing the benefits of a creditors’ voluntary liquidation (CVL).
What is a CVL?
A creditors’ voluntary liquidation is a quick yet powerful way to close a business while ensuring that everything is dealt with legally and properly. It allows business directors to start up a new business, having debts dealt with and leases cancelled, and is a good option for business owners if their company has no viable future.
A CVL is a straightforward process once it has begun, so it could make a good option for your client.
If carried out correctly, many directors do not have to pay to liquidate a limited company. The earlier you spot the warning signs, the better. It is a common misconception that a company director will have to pay for liquidation out of their own pocket.
However, if caught at an early stage, insolvency can often be paid for through company assets.
During the liquidation process, a liquidator is appointed to liquidate a company’s assets in order to raise funds to pay creditors. The business will be removed from the registrar, meaning that it will be unable to trade and will, therefore, close for good. Wrongful trading can take place when a director does not follow their director’s duties under the Insolvency Act 1986.
In most cases, a CVL is a better option for businesses than letting a creditor wind up your company voluntarily. This is because it is less likely to result in charges of wrongful trading as the director takes control of the situation.
Before starting the CVL process
Before recommending a creditors’ voluntary liquidation, it’s essential to speak with a Licensed Insolvency Practitioner. While a CVL is a valuable tool, it isn’t always the best or only option available. Exploring all avenues ensures your client makes an informed decision—and helps protect their legal responsibilities as a director.
Some important things to consider before proceeding:
- Get specific insolvency advice – An Insolvency Practitioner can assess the full financial picture and explain the pros and cons of each option.
- Explore alternative solutions – Company Voluntary Arrangements (CVAs), business restructuring, or administration might be more suitable depending on the situation.
- Prioritise creditors’ interests – Directors have a legal duty to act in the best interests of creditors once insolvency is likely.
- Avoid delays – Acting early reduces the risk of wrongful trading and may improve the outcome for all parties involved.
Taking the right steps at the right time can make a significant difference—not just to your client’s peace of mind, but to the final outcome for their business.
The advantages of creditors’ voluntary liquidation
Entering into a creditors’ voluntary liquidation (CVL) is often seen as a positive move by creditors. It shows that the business is taking responsibility and putting creditors’ interests first, rather than waiting for legal action to be taken. This proactive step can help preserve professional relationships and reduce the risk of further complications.
There are several reasons why creditors and company directors may favour this approach:
- Shows goodwill towards creditors - Creditors are more likely to respond positively when directors take early action. A CVL demonstrates that the business is acting in their best interests.
- Improves chances of repayment - Through the sale of business assets, creditors can expect to receive at least some repayment of what they are owed.
- Reduces stress for directors - Closing a company through a CVL can significantly reduce the pressure and frustration that often builds up when a business is failing. It provides clarity and closure.
- More control for business owners - In a CVL, directors choose the licensed liquidator who will handle the process. This is a key difference compared to compulsory liquidation, where the appointment is made by the court or creditors.
- Less urgency, more preparation - The CVL process allows directors to carry out their responsibilities properly and in line with the Insolvency Act 1986. The reduced urgency also gives directors more time to prepare, helping to minimise unnecessary losses.
- Faster process than compulsory liquidation - A CVL usually takes around two to three weeks to reach the initial meeting of creditors. In contrast, a compulsory liquidation can take several months, during which time stress and uncertainty can mount.
The process of a creditors’ voluntary liquidation is much faster than a compulsory liquidation. A CVL only takes around 2-3 weeks to facilitate the initial meeting of creditors, while compulsory liquidation can take several months.
By taking early action and entering a CVL, directors can retain an element of control, protect their legal position, and bring the business to a close in a more managed and respectful way.
When to act
As soon as you spot the early warning signs that a client’s business may be insolvent, it’s essential to start preparing for the next steps. Early action can make a significant difference to the outcome of a company liquidation, especially when it comes to protecting directors and prioritising creditors.
Referring your client to a licensed Insolvency Practitioner at the earliest opportunity is highly recommended. The sooner a creditors’ voluntary liquidation (CVL) is initiated, the better positioned your client will be to manage the process of company closure effectively and in accordance with the law.
Timing is everything. Directors who act early may also help employees access financial support such as redundancy pay, unpaid wages, and holiday pay through the National Insurance Fund, a government-backed scheme that supports workers in the event of an insolvent company.
At McAlister & Co., we understand that no two situations are the same. That’s why we offer:
- Fixed quotes over the phone
- Informal meetings at your client’s convenience
- Friendly, expert advice from specialists with over 100 years of combined experience
Our goal is always to find the most practical and cost-effective solution to liquidate a limited company. With national coverage and a team of compassionate, straight-talking professionals, your clients will be in safe hands with McAlister & Co.
Your clients will be in safe hands with McAlister & Co. Get in touch with us today to discuss your options further.
