Creditors’ Voluntary Liquidation (CVL) in Scotland

What is a creditors voluntary liquidation?

A creditors’ voluntary liquidation is a formal insolvency procedure used to close a company that is insolvent. The directors decide the company cannot continue, the shareholders vote to wind it up, and a licensed insolvency practitioner is appointed as liquidator to sell the company assets, deal with creditors and bring the company to an end.

It is called a voluntary process because it is initiated by the directors themselves, rather than waiting for a creditor to issue a winding up petition and force the company into compulsory liquidation. That control over the process, including the right to appoint your own liquidator, is the main reason directors of an insolvent company choose to enter into a CVL.

Signs a CVL may be the right option for your company

A company is insolvent if it cannot pay its debts as they fall due, or if its liabilities are greater than its assets. You should speak to an insolvency practitioner about liquidation if:

• HMRC arrears are building and a Time to Pay arrangement has failed or been refused
• pressure from creditors is growing, with statutory demands, court actions or threats of a winding up petition
• the company is using new credit to pay old debts and cannot see a way to recover
• wages, rent or supplier bills are being paid late every month
• the business has stopped trading but still has debts, a lease or a Bounce Back Loan

Once a company is insolvent, directors must put the interests of creditors first. Continuing to trade and building up more debt can lead to accusations of wrongful trading under the Insolvency Act and questions about your conduct, so early advice protects you as well as the creditors.

CVL compared with other options

If your company can pay its creditors in full, a members voluntary liquidation (MVL) is the route for closing a solvent company. If a creditor has already petitioned, read our guide to winding up petitions in Scotland.

The CVL process in Scotland, step by step

1. Free initial consultation

We review the company’s financial position, the assets of the company, its debts and any personal guarantees, and confirm whether liquidation is the right answer or whether a rescue option is possible.

2. Directors agree to liquidate

The board meets, decides the company cannot continue to trade because of its debts, and calls a general meeting of shareholders. Every company director should be involved, and any shareholder who is not a director is given notice of the meeting.

3. Shareholders pass a winding up resolution

At least 75% of the voting shareholders must approve a special resolution to wind the company up. The shareholders also nominate an insolvency practitioner as liquidator. The resolution is sent to Companies House within 15 days and advertised in the Edinburgh Gazette within 14 days.

4. Statement of affairs

The directors prepare a statement of affairs listing the company’s assets, liabilities and creditors. We help you prepare it. It goes to creditors before they make their decision on the liquidator.

5. Creditors’ decision

Creditors are asked to confirm the liquidator, usually by deemed consent or a virtual meeting. The decision date must be no later than 14 days after the shareholders’ resolution. Creditors can nominate a different liquidator if they choose.

6. The liquidator takes control

Once appointed, the liquidator takes over the company’s affairs, closes down the company, sells the assets with the aim of maximising returns for creditors, agrees creditors’ claims and pays any dividend in the order set by law. The liquidator also investigates why the company failed and reports on the conduct of the directors to the Insolvency Service, as every liquidator must.

7. The company is dissolved

When the liquidation is complete, the liquidator files a final account and the company is removed from the Companies House register, usually three months later.

In most cases the liquidator can be appointed within a couple of weeks of your first call. The full liquidation process then typically takes six to eighteen months, depending on the assets and the number of creditors.

Who gets paid in a liquidation?

Secured and unsecured creditors are paid from the money the liquidator raises when it sells and liquidates the company assets, in a strict order:

• creditors holding fixed charges over specific assets
• the costs of the liquidation
• preferential creditors, mainly employee claims for wages and holiday pay
• secondary preferential creditors, which since December 2020 includes HMRC for VAT, PAYE, employee National Insurance and CIS deductions
• creditors holding floating charges, after a share of funds is set aside for unsecured creditors
• unsecured creditors such as suppliers, landlords, unsecured lenders and Bounce Back Loan lenders
• shareholders, if anything is left, which is rare in an insolvent liquidation

What a CVL means for directors

A creditors’ voluntary liquidation is the responsible way to close an insolvent company, and for most directors the outcome is straightforward. Points to understand before you start:

• Personal liability. Your personal assets and personal finances are not at risk for company debts unless you gave a personal guarantee, have an overdrawn director’s loan account or are found to have traded wrongfully or fraudulently.
• Redundancy. Employees who are made redundant can claim redundancy pay, notice pay and arrears of wages from the Redundancy Payments Service. Directors who were also employees on the payroll may be able to claim in the same way.
• Future directorships. You can be a director of other companies after a CVL unless you are disqualified. There are restrictions on using the same or a similar company name for five years, so take advice before starting a new business with a similar name.
• Your cooperation. Directors must hand over books and records and cooperate with the liquidator.

How much does a CVL cost?

The cost of a creditors’ voluntary liquidation depends on the size of the company, the assets and the number of creditors. Where the company has assets, the fees are usually paid from those assets. Where there are no funds to pay the fees, the directors may need to contribute to the cost of the liquidation, and in some cases this can be met from redundancy pay. We will give you a clear quote in writing at the first meeting, before you commit to anything.

Why choose McLaren Insolvency Practitioners?

We are a Glasgow based firm at 250 West George Street, helping directors across Scotland to close insolvent companies properly. Every CVL is handled under Scots law by licensed insolvency practitioners, with notices in the Edinburgh Gazette and procedures that follow the Scottish insolvency rules. We will:

• give you straight answers about what liquidation means for you personally
• deal with creditors and HMRC so the calls and letters stop coming to you
• help you prepare the statement of affairs and gather the company records
• support any redundancy claims you are entitled to

For a deeper guide, read how to liquidate a limited company in Scotland.

CVL FAQs

How long does a creditors’ voluntary liquidation take?

The liquidator can usually be appointed within a couple of weeks. Most liquidations then take between six and eighteen months to complete, depending on the assets and any investigations.

Can HMRC stop a CVL?

HMRC cannot block the shareholders’ resolution, but as a creditor it can vote on the choice of liquidator and it will receive the statement of affairs. Where HMRC has already issued a winding up petition, the timing needs careful handling.

Will I be disqualified as a director?

Not automatically. The liquidator must report on every director’s conduct, but disqualification only follows where there is evidence of unfit conduct, such as trading to the detriment of creditors or taking money out of an insolvent company.

What happens to a Bounce Back Loan in a CVL?

A Bounce Back Loan is an unsecured company debt, so it is dealt with in the liquidation like other unsecured debts. Directors did not give personal guarantees for Bounce Back Loans, but the liquidator will review how the loan money was used.

Can I buy back the company assets?

Yes, directors can buy assets from the liquidator at a fair independent valuation. This must be done properly and openly, and name restrictions may apply if you trade under a similar name.

Considering liquidation? Book your free consultation today.