Free Creditors Voluntary Liquidation Advice - CVL - Help & Pre Planning

Different types of Company Liquidation - The law & Case Studies - Benefits available from a restructure

Before we address the matter of liquidation advice for companies (by way of a case study) it is useful to first answer the question "what is a creditors voluntary liquidation" (CVL)?

A Creditors Voluntary Liquidation (or CVL) is defined in a strange way by Section 90 of The Insolvency Act 1986. What that Section effectively says is that if the directors cannot swear a statement of truth that the Company is solvent (within the meaning of Section 89) then the company is insolvent!

To end its life voluntarily an insolvent company must use a Creditors Voluntary Liquidation (CVL) instead of a Members Voluntary Liquidation (MVL). This definition is the equivalent of saying that if you are not fat you are thin. In plain English a company is placed into this the most common type liquidation if it is insolvent.

Section 90 of The Insolvency Act 1986 reads as follows:

"A winding up in the case a statement of truth under Section 89 has been made is a "members" voluntary winding up; and a a winding up in the case of which such a declaration has not been made is a "creditors voluntary winding up"".

That might make us ask "what is the legal definition of insolvency"? The definition of "inability to pay debts" is found at Section 123 of The Insolvency Act 1986. The definition in that Section is mainly concerned with the objective evidence of insolvency required for a Court to make a winding up order. The legal definition of insolvency for creditors voluntary liquidation purposes is generally taken as being:

- An inability to pay debts when they fall due or

- An excess of company liabilities over assets

There is a third type of liquidation known as a Compulsory Liquidation. Your company would be placed in Compulsory Liquidation if a Court were to make a winding up Order. 

By contrast a "voluntary liquidation" is one where the directors "voluntarily" arrange to place their company into liquidation as opposed to having their company "compulsorily" wound up by the Court. After taking advice you would instruct a private sector insolvency practitioner to work with you to place your company into creditors voluntary liquidation.

A CVL is the most common form of liquidation and a planned CVL of your company can, perhaps surprisingly,  realise huge financial benefits - some of which are listed below. The procedure is commenced by you as a the director and shareholder of your limited company - not by your company's creditors. This type of Liquidation is also sometimes known in shorthand by the initials CVL or  by the phrases "Company Bankruptcy" or "Company Liquidation".

If you want something substantial to arise out of the ashes of a liquidation of your company then advice followed by planning and preparation is essential before considering or commencing any liquidation action.

Preparation

A short factual review with insolvency practitioners prior to  taking the decision to place your limited company into liquidation provides you (as a director) with a planning opportunity. The plan could both improve the position for creditors and enable you to prepare for a new business existence.  The plan could include elements of some or all of the following::

-  A re-start company (if required) with or without a pre-pack or

-  Reducing staff numbers or

-  A company restructure which eliminates the existing debt burden.of VAT, PAYE, Corporation Tax, trade creditors etcetera or

-  Closing unprofitable units or

-  Leaving behind burdensome property leases or

-  Leaving behind costly hire purchase, lease purchase, leasing, rental or contract hire agreements

-  Eliminating unprofitable contracts or

To read a case study of a CVL followed by a resurrected phoenix company please click on the link below:

- liquidation advice - CVL case study

As part of your planning and preparation and as a preliminary to taking Creditors Liquidation Advice for your limited company please click on the further topics on the left hand side index on this page.