What Is A CVL? | Creditors' Voluntary Liquidation Explanation

What Is A CVL? | Creditors' Voluntary Liquidation Explanation

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A Creditors’ Voluntary Liquidation (CVL) is a formal insolvency procedure which involves the directors of an insolvent company voluntarily choosing to bring their business to an end, and wind the company up. Although the process is entered into on a voluntary basis, it often follows the cumulation of many months of financial distress when the possibility of a successful turnaround has been extinguished. Even though this is far from an ideal situation, for an insolvent company which has no viable future as a profitable entity going forwards, voluntary liquidation by way of a CVL may be the best solution for all concerned.

While there are a range of formal insolvency procedures, such as administration and CVAs, which aim to turnaround the fortunes of a struggling company, in some cases a business will be beyond rescue and the best course of action is to wind it up via liquidation. This allows the directors to move on, and creditors to recover as much money as possible, where there are realisable assets.

A CVL brings the company to a close and deals with all outstanding company debts as part of the process. While asset realisations will be maximised in order to provide a return to creditors, where a company enters CVL there is likely to be a significant shortfall to creditors, however this will be written off upon the company being liquidated. The exception to this rule is for company debts which have been personally guaranteed . If you have signed a personal guarantee (PG) responsibility for paying the outstanding amount of this borrowing will remain with you personally and will not be written off.

A common example of this is where part of a director’s remuneration package may have been taken as payment of dividends, which is more advantageous from a tax point of view, rather than as a salary. But if a company is insolvent, it should not have been declaring dividends to shareholders and a liquidator will need to claw back that money for the benefit of creditors. This may mean that payments which have been made to directors over a period of years can be looked at very closely and very significant claims can be made.

Creditors' Voluntary Liquidation is a great Bankruptcy Alternatives and Filing for a CVL can be rather easy! Be sure to check out Debt Advice UK to learn more about Filing for CVL and why its a great bankruptcy options. If you wish to see what Company Voluntary Arrangements UK you suit, then feel free to take their 30 second quiz, which will help you understand what they can do for you: https://debtcare.co.uk/chat

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