We are often asked ‘What is the difference between a Compulsory Liquidation and a Creditors’ Voluntary Liquidation (CVL)?’

Compulsory Liquidations due to HMRC Winding-up Petitions have doubled in 2023. Always take advice early. If Liquidation is unavoidable, a CVL is often the better choice.

What is Compulsory Liquidation?

Compulsory Liquidation is a corporate insolvency procedure and is frequently used by a creditor who is owed money and is not being paid. The Company does not have to be insolvent but usually is, and more often than not there is no part of the business that can be salvaged or is worth saving. The process starts with a petition which is served on the Company at its registered office, and a hearing date is fixed for the formal winding up of a company’s affairs through the Company Courts.

A Liquidator is appointed at the hearing and takes control of the Company’s affairs immediately. The appointed Liquidator is usually the Official Receiver (an officer of the Court and a civil servant), and the debtor company has little or no control of the process. However, if action is taken before the hearing date, even if the Company is insolvent (the earlier the better) the Company has the opportunity to prevent a Compulsory Liquidation taking place by instigating a Creditors’ Voluntary Liquidation.

What is a Creditors’ Voluntary Liquidation (CVL)?

A Creditors’ Voluntary Liquidation is an insolvency process instigated by the owners, directors, or shareholders of a company because they have become, or know they are becoming, insolvent and as a result cannot pay their creditors as and when they fall due. It is a flexible solution, and means the Courts are not involved and no Official Receiver is appointed. Instead, a CVL is administered by a Liquidator who is a Licensed Insolvency Practitioner.

A CVL, being voluntary, offers more control to the directors, with a much better chance of an orderly winding-up of the company. There is also the opportunity to examine other potential options which may lead to a restructuring process which could save the business and jobs.

In a separate article, we look at the advantages of a CVL.

Talk to our Licensed Insolvency Practitioners if you are concerned about your company becoming insolvent, or are facing a petition for a Compulsory Liquidation, or contact one of our offices:

Also, K&W Recovery, trading as Antony Batty and Company, Thames Valley:

Our Insolvency Practitioners will take you through your options step by step and will advise you of the best one to take under the prevailing circumstances.