Compulsory Liquidation vs Creditors’ Voluntary Liquidation (CVL)

Liquidation will undoubtedly be on your mind if your company doesn’t have a realistic chance of recovering from its financial distress. Selling business assets to repay debts and dissolving the firm will relieve creditor pressure and help you to move on.

There are two forms of insolvent liquidation – you need to consider compulsory liquidation vs creditors’ voluntary liquidation. Familiarising yourself with their differences and considering why company choose compulsory instead of creditors’ voluntary liquidation in some situations will help you to conclude your business’s affairs in the best way.

Irwin Insolvency’s licensed insolvency practitioners regularly work as liquidators and offer specialist advice about compulsory liquidations and CVLs. So as well as discussing compulsory liquidation vs creditors’ voluntary liquidation in general terms here, we’re ready to help you make a well-informed decision about your company’s future. Simply call 0800 254 5122 today.

What’s the Difference between Compulsory Liquidation and CVL?

Whether a company enters compulsory liquidation or a CVL, the end result is the same: the firm ceases to exist. Does that mean there’s little difference between these insolvency procedures? No – exploring compulsory liquidation vs creditors’ voluntary liquidation and contemplating why company choose compulsory instead of creditors’ voluntary liquidation in certain cases reveals significant differences regarding how each process is initiated, how the liquidator is appointed, and effects on directors.

Directors can file a winding-up petition asking the court to place their company in compulsory liquidation, as the government’s website makes clear. However, this process is usually initiated by an exasperated creditor instead. At a hearing soon after, the court will grant a winding-up order if the business is insolvent and the debt remains unpaid.

By contrast, creditors’ voluntary liquidation is an out-of-court process initiated by directors. So it gives you more chance to prepare and more control over the timing. You seek creditors’ approval, which fosters a more cooperative atmosphere. And whereas compulsory liquidation is led by an official receiver and a private-sector liquidator chosen by the court, a company entering a CVL appoints its preferred IP as sole liquidator.

Another aspect of the compulsory liquidation vs creditors’ voluntary liquidation debate concerns directors’ reputations. Arranging a CVL and paying the fees by liquidating assets reflects well on you. It shows you’re taking a proactive approach to protecting creditors’ interests, in line with your responsibilities. Directors who wait for a creditor to petition the court and pay the fees are more likely to damage their reputation and be penalised following the liquidator’s investigation.

Is Compulsory or Voluntary Liquidation Best?

Because CVLs aren’t forced on companies and offer directors greater freedom, they’re often more efficient and less stressful than compulsory liquidations. With a CVL, your company could recover more money and be liquidated in six months rather than a year, say.

Given the advantages of CVLs, you’re probably wondering why company choose compulsory instead of creditors’ voluntary liquidation in some cases. The answer tends to be that the directors have such a poor relationship with creditors that they’d rather petition the court than contemplate a process in which creditors are more closely involved.

But for most companies weighing up compulsory liquidation vs creditors’ voluntary liquidation, the latter is more beneficial.

Expert Advice about CVLs and Compulsory Liquidation

If your company can’t continue, our insolvency practitioners can advise you about your next steps.

For expert help with CVLs or compulsory liquidation, contact Irwin Insolvency today.