What is a CVL?
A Creditors’ Voluntary Liquidation (CVL) is a formal process where you and any other company directors can voluntarily close down your contractor company if it is in financial distress.
Creditors’ Voluntary Liqudation as a contractor…
The decision to go ahead with a CVL is taken when your company is insolvent, meaning it can no longer meet its financial obligations. By going forward with a CVL you can ensure that your company is closed down or ‘liquidated’ in a professional and controlled manner for you and everyone involved.
A CVL requires the appointment of a licensed Insolvency Practitioner (IP) to carry out the liquidation process. The IP will investigate your company’s affairs, deal with any legal actions taken against your company, and ensure all assets (if any) are converted into cash and fairly distributed among your creditors.
The CVL will ultimately result in your contractor company being closed down and no longer being able to legally trade.
Is a CVL right for me?
A CVL is the right option for you if:
- You have more liabilities than assets in your company
- You can’t pay your outstanding debts
- Your company is trading at a loss
- You have ceased trading but still have outstanding liabilities
- Your company is no longer viable (i.e. it cannot be recovered)
What are the benefits of a CVL?
If your contractor company is in financial distress and you are unable to pay off your debts and liabilities, then it is likely that your company is insolvent and is in need of liquidation.
By placing your company into a CVL you take can take control of the situation yourself, rather than waiting for legal action to force closure. It can provide fast relief from debt and creditor pressure.
By addressing that your company is no longer able to meet its financial obligations you can have financial matters dealt with professionally and legally.
Can contractors avoid a CVL?
As with any financial decision, it is important that you seek professional advice. Speaking to an experienced and reputable IP can help you understand your situation; they can suggest alternatives such as seeking finance to help settle your outstanding debts or helping you to arrange a TTP (Time to Pay) agreement with HMRC to pay off outstanding tax debt over time.
Their advice could help you successfully turn the situation around, so your company does not need to undergo a CVL.
It may be tempting to just do nothing. But by doing this you are potentially leaving yourself open to your creditors bringing action against you. It is always recommended that you close down your contracting company in a controlled legal way for the benefit of everyone involved.
Strike off/dissolution
An alternative option to close down a solvent limited company is a strike off, also known as a dissolution.
This option is an informal way to close down your limited company. It costs a small fee of £10 payable to Companies House and you will be liable to pay tax on all your company's assets. Be aware, the dissolution fee with Companies House is increasing quite significantly from May 1st 2024.
Strike off/dissolution vs CVL
While a strike off may seem like a less expensive option, it is important to note that if you have outstanding debts at the point of strike off, then you may meet objections from your creditors. As they will be notified of your intention to close down your company, these objections will block your application for a strike off.
With a CVL you will have the peace of mind that all your affairs have been professionally dealt with and your company correctly liquidated.
How much does a CVL cost?
An initial upfront fee will be charged if you seek a CVL, and this upfront fee is known as a pre-appointment fee.
The fee covers the costs incurred to assist with placing the company into liquidation, ensuring compliance with legal requirements such as filling out relative notices and any other administrative tasks. Usually the pre-appointment fee will start around £3,000.
The cost of the work after your company is placed into liquidation is known as post-appointment costs. These costs will depend on the complexity of your case. Fortunately, these costs can be paid from the sale of any company assets or any money which may have been owed to your company that has been recovered.
What is the CVL process and how long does it take?
The completion of the liquidation process can take 6-12+ months, depending on the size of the business and the complexity of the case.
What are the various stages of a CVL?
The below is a chronological, step-by-step walkthough of the Creditors’ Voluntary Liqudaition process – it’s broadly six stages.
1. Director board meeting or sole director decision
All your company directors (or just you if you are the sole decision maker) must instruct an IP to discuss if a CVL is the right option for your company and help with any required paperwork.
A meeting is then called to make the decision to close your company through the CVL process. This must be approved by the requisite number of directors.
In this meeting you will also need to decide on your choice of liquidator to oversee the CVL procedure.
2. Shareholder and creditor notices
A notice will be sent out to all of your creditors and shareholders informing them of your decision to place the company into liquidation. Both parties will be sent a statement of affairs detailing your company’s current financial position. They will also be informed of your choice of liquidator.
At this point your company is not yet in liquidation and you must continue to act in the interests of your creditors.
3. Members’ meeting
During this meeting you will place the company into liquidation and appoint your liquidator.
4. Creditors’ decision
On the basis that your creditors do not object to your choice of liquidator, then their appointment will be confirmed.
5. Company in liquidation
Once you have appointed your liquidator, they will begin the CVL process. This will involve:
- the realisation of all business assets,
- investigations into the running of the company,
- working with recovery agents,
- any legal disputes,
- any qualifying employee redundancies, and;
- distributing assets fairly among creditors where possible.
During this period, any relevant reports and notices will be made to Companies House and creditors about the progress of the liquidation.
6. Company dissolved
Once all matters have been concluded, a final report will be sent to your creditors. At least eight weeks after, this report will be sent to Companies House, which will proceed to dissolve your company three months later.
Why do I need an insolvency practitioner for a CVL?
You cannot enter into a CVL without appointing an IP.
Your IP will administer the whole CVL process in a transparent, fair and professional way.
What duties your IP will carry out
- Collect, value and convert your assets into cash (‘realise’)
- Investigate your company’s financial affairs and the conduct of you and any other directors.
- Deal with creditor claims and distribute the proceeds from the sale of assets.
- Ensure compliance with statutory requirements and reporting obligations.
- Dissolve your company and remove it from the Companies House register.
These affairs aren’t for the faint-hearted, so only go to experts like SFP Group
Owning an insolvent contractor company can be a distressing time.
By placing your company into a CVL you can relieve much of this stress. Knowing that your company has been correctly dissolved can bring relief and much-needed peace of mind.
ContractorUK is alive to the concerns that entering into a CVL can bring. This is why ContractorUK has entered into partnership with SFP, one of the UK’s largest CVL providers.
SFP has a team of award-winning liquidation experts on hand to take you confidently through the CVL process with as little stress as possible. You can be confident that with SFP you are in expert hands.
If you are ready to take the next steps to closing down your insolvent company, then visit sfp-cvl.co.uk
To find out more about SFP and their award-winning CVL service visit sfpgroup.com/restructuring/services/creditors-voluntary-liquidation
