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The Insolvent Liquidation Process explained

What is a Creditors’ Voluntary Liquidation (CVL)?

When a company cannot pay its debts when due, it is deemed insolvent and the directors of the company have to decide whether it is the right course of action to close the company and place it into a Creditors’ Voluntary Liquidation (“CVL”)

The first step usually is to seek advice from a Licensed Insolvency Practitioner regarding whether liquidation is the correct route and if so, to discuss and understand the process.

A CVL is a formal insolvency procedure governed by the Insolvency Act 1986. It is usually used to close down a company that has reached a position of insolvency. The directors start the process by instructing a Licensed Insolvency Practitioner to help them liquidate the company. Meetings of the shareholders and creditors of the company are convened and it is at these meetings that the Liquidator is formally appointed.

Once appointed, the Liquidator is in total control of the company and the directors’ powers cease. It is the duty of the Liquidator to realise the company’s assets, agree the claims of creditors and pay a dividend to creditors if there are sufficient funds available.

Some Warning Signs of Insolvency



  • Creditors threatening legal action to retrieve funds owed
  • The company has been put on stop by a supplier
  • The director has not taken salary for a few months due to the lack of available funds
  • The company is unable to receive further credit


How to test insolvency


  • The Cash Flow Test: The company are unable to make payments as and when they fall due
  • The Balance Sheet Test: The company’s liabilities outweigh its assets 


A CVL is appropriate when…


  • The Company is insolvent
  • The company is not viable for a business rescue option
  • The Directors do not want to accrue any further liabilities to creditors by trading insolvently


The Timothy James Partnership works to help businesses in financial difficulty and we can advise you on how to deal with situations which may put your business at risk of insolvency.

Added: 22 Dec 2016 13:14

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The Timothy James Partnership

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Insolvency Practitioners Association
About Us

We are an independent firm of specialist Licensed Insolvency Practitioners located in Bromsgrove, Worcestershire.

At The Timothy James Partnership, we work very closely with local businesses and professionals, providing guidance on formal insolvency procedures and advice on restructuring businesses.

We recognise that at times, companies find themselves in difficult financial circumstances and our aim is to provide practical solutions in these situations.