CVL and CVA the Differences – What You Need to Know

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In the challenging landscape of business operations, company directors may often find themselves navigating the complexities of financial instability. Two key concepts that emerge during such periods are the Company Voluntary Arrangement (CVA) and Creditors’ Voluntary Liquidation (CVL). Both of these processes offer different paths for companies facing financial hardship, each with their distinct implications, benefits and potential drawbacks.

A CVA and CVL are fundamentally different solutions to a company’s financial difficulties. Understanding these differences is crucial for company directors as the choice between them can significantly impact the company’s future, as well as the directors’ responsibilities and potential liabilities.

A CVA is an arrangement made with the company’s creditors, which allows the company to pay off its debts over time while continuing to trade. On the other hand, a CVL is a form of liquidation where the company ceases to trade, and its assets are sold to repay creditors.

The process of selecting the most appropriate course of action can be daunting, and it is one where the advice of a fully licensed insolvency practitioner can prove invaluable. This article aims to elucidate the key distinctions between a CVA and a CVL, the pros and cons of each, and the potential implications for directors, thereby aiding you in making informed decisions about your company’s future.

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Understanding a Company Voluntary Arrangement (CVA)

A CVA is a formal insolvency procedure that allows a financially distressed company to reach an agreement with its creditors about payment of all, or part of its debts over an agreed period. This agreement is legally binding and once in place, it offers the company a degree of respite from creditor pressure, allowing it to continue trading while addressing its financial issues.

The CVA is typically suitable for companies that are struggling with cash flow but are fundamentally viable businesses. It can also be a good option when the company’s position indicates that creditors will receive more money back through a CVA than they would in a liquidation scenario.

The main advantage of a CVA is that it allows the company to keep trading and potentially return to profitability, which can be beneficial for the company’s shareholders, employees, and creditors. It also allows for the restructuring of debts into more manageable payments and offers protection from winding-up petitions. However, the downside is that it requires approval from at least 75% (by value) of the company’s creditors. It’s also important to note that any personal guarantees given by directors to creditors will still stand.

Key terms associated with a CVA include:

  • Unsecured Creditors: These are creditors who do not hold security (like a mortgage) over a company’s assets. They stand last in the line to get paid in an insolvency situation.
  • Company’s Creditors: These are individuals or businesses that the company owes money to. They could be banks, suppliers, HMRC, or anyone else who has provided goods, services, or credit to the company.
  • Creditor’s Meeting: This is a meeting of a company’s creditors where they vote on proposals put forward by the company or its appointed insolvency practitioner. For a CVA, this is where the creditors would vote on whether to accept the proposed terms of the CVA.

The role of a director during a CVA is to work closely with the appointed insolvency practitioner to ensure the successful implementation of the agreed plan, whilst keeping in line with their responsibilities and duties as a director. This process can be complex and can have far-reaching implications, which is why it’s crucial to seek the advice of an experienced and fully licensed insolvency practitioner.

For more information please see our page on Company Voluntary Arrangements.

Understanding a Creditors’ Voluntary Liquidation (CVL)

Creditors’ Voluntary Liquidation, known as a CVL, is a formal insolvency procedure wherein the directors of an insolvent company choose to voluntarily bring the business to an end by appointing an insolvency practitioner to liquidate all of its assets. This typically occurs when the company is unable to pay its debts as they fall due, also known as cash flow insolvency, or when its liabilities outweigh its assets – balance sheet insolvency.

The Creditors Voluntary Liquidation (CVL) is most suitable when a company is insolvent and there is no realistic prospect of recovery. It’s also appropriate when directors want to avoid the risk of wrongful trading, which they could be held liable for if they allow the company to continue trading while insolvent.

The primary advantage of a Creditors Voluntary Liquidation (CVL) is that it allows for an orderly winding up of the company’s affairs, under the supervision of a licensed insolvency practitioner. The downside of a CVL is that it means the end of the business. Furthermore, the liquidation costs are deducted from company assets, reducing the overall return to outstanding creditors.

Key terms associated with a CVL include:

  • Insolvency Practitioner: An authorised professional who acts as the liquidator in a Creditor’s Voluntary Liquidation. They take control of the company, sell its assets, and distribute the proceeds to the creditors.
  • Liquidation Process: This is the process of selling company assets, paying off creditors, and distributing any remaining assets to the shareholders. In a CVL, the process is carried out by the appointed insolvency practitioner.
  • Creditor Pressure: This refers to the situation where creditors are demanding payment, often threatening legal action, and may also include the filing of a winding-up petition.

The decision to enter a CVL should never be taken lightly, as it has significant consequences for all involved. Directors should always seek professional advice from a licensed insolvency practitioner when considering this route. It’s also important to note that the CVL process is different from a Compulsory Liquidation, which is instigated by creditors and not the company’s directors.

For more information please see our page on Creditors’ Voluntary Liquidations

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CVA vs CVL: Head-to-Head Comparison

A CVA and a CVL are both formal insolvency procedures, but they’re quite distinct in their purposes, effects, and the roles of the director. Let’s directly compare the two on several key aspects:

  • Financial Position: A CVA is an option when a company is experiencing financial difficulties but is still potentially viable. The aim is to restructure and repay the debts over time. A CVL, on the other hand, is pursued when the company is insolvent and there is no prospect of recovery. It involves stopping all operations, selling company assets and distributing the proceeds to creditors.
  • Impact on the Company’s Assets: In a CVA, the company retains control of its assets, and operations can continue. The assets can still be used to generate income, aiding in the repayment of the company’s debts. With a CVL, the appointed insolvency practitioner takes control of the assets, selling them off to repay creditors as much as possible.
  • Potential for Wrongful Trading: Directors have to be careful in both cases. They must not allow the company to take on new credit if there’s no reasonable expectation that it can be repaid – doing so can lead to accusations of wrongful trading. However, this risk is particularly pronounced in a CVL situation, where the company’s insolvency is accepted.
  • Company Director’s Role and Responsibilities: In a CVA, the director has an active role to play. They must work closely with the insolvency practitioner to come up with a proposal for repayment that is acceptable to the creditors. In a CVL, once the insolvency practitioner is appointed, the directors’ powers cease. Their main responsibility is to assist the insolvency practitioner, providing all necessary information about the company’s affairs.
  • Risks and Considerations: Each option comes with its own risks. In a CVA, there is the risk that the company might not meet the terms of the arrangement, leading to potential liquidation. A CVL, however, ends with the company’s dissolution. In both cases, directors need to consider the potential for being held personally liable if wrongful trading is proven. Moreover, the outcome of shareholders’ meetings can also influence the decision, as their agreement is necessary to proceed with either of these insolvency options.

Companies House plays a significant role in both a CVA and a CVL. It is a government agency that maintains the register of all limited companies in the UK. When a limited company initiates a CVA or a CVL, it is legally required to file specific documents with Companies House.

In both a CVA and CVL, the role of a shareholders meeting is pivotal. A CVA proposal, once formulated, must be approved not just by creditors but also by the company’s shareholders in a shareholders meeting. In the case of a CVL, a shareholders meeting is typically where the resolution to voluntarily wind up the company is passed.

In a CVA, these documents include the proposal, director’s report, and the statement of affairs, among others, to allow creditors and interested parties to understand the company’s financial position and why a CVA is considered necessary.

In a CVL, an insolvency practitioner is appointed liquidator who then has the responsibility of submitting a statement of affairs, along with a series of additional reports, to Companies House throughout the process. These reports include details on the company’s assets, liabilities, and the proposed method of liquidation. Failure to submit these essential documents accurately and promptly can lead to penalties. Therefore, understanding the role of Companies House and the associated obligations is crucial for company directors navigating through a CVA or a CVL.

While both CVAs and CVLs aim to maximise returns to creditors, they do so in different ways and with different impacts on the company and its directors. Therefore, professional advice from a fully licensed insolvency practitioner is crucial when a company is facing financial distress.

Companies House is a reliable source for explaining legal obligations related to CVAs and CVLs.

Case Studies

Case Study 1: Company A and CVA

Company A, a high-street retailer, began struggling financially due to the rise of online shopping and an economic downturn. They were in debt but still had a viable business model. The company directors approached an authorised insolvency practitioner, and together they came up with a proposal for a CVA.

In this proposal, the company planned to pay a percentage of their debts over a period of five years, whilst continuing to trade. The proposal was presented at a creditors’ meeting and, after careful consideration, it was approved by the majority of the unsecured creditors.

The CVA gave the company the breathing room it needed to restructure and adapt to changing market conditions. It was able to negotiate better terms with trade creditors, invest in e-commerce, and ultimately return to profitability. This case demonstrates how a CVA can give a struggling company a second chance if there’s a viable plan for its recovery.

Key Takeaway: A CVA is a lifeline for distressed companies with a viable business model. It provides an opportunity to negotiate with creditors and to restructure, which may lead to the survival and growth of the company.

Case Study 2: Company B and CVL

Company B, a small construction firm, had been suffering from a prolonged period of low demand, escalating costs and cash flow problems. Despite the best efforts of the company directors to turn things around, the company’s position worsened to the point of insolvency.

The directors decided to initiate a Creditors’ Voluntary Liquidation (CVL). They appointed a fully licensed insolvency practitioner, who took control of the company’s assets, held a creditors’ meeting, and the same day began the liquidation process. The assets were sold, and the proceeds were used to pay the liquidation costs and repay the company creditors in the order specified by law.

Unfortunately, the company was dissolved after the liquidation process, but the directors fulfilled their legal responsibilities and avoided the risk of wrongful trading. They also made sure that the creditors received as much as possible given the circumstances.

Key Takeaway: When a company’s financial difficulties are insurmountable, CVL can provide an orderly and fair way to wind up the company’s affairs. It allows the directors to meet their legal obligations and minimise the potential personal risk associated with insolvent trading.

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How to Choose Between a CVA and a CVL

When a company faces financial distress, the directors need to assess the company’s position meticulously. If your company is struggling, the choice between a CVAand a CVL is one of the most critical decisions you’ll make. Here’s some guidance on how to approach this.

Evaluating the Company’s Financial Situation

The first step is to conduct an in-depth analysis of your company’s financial situation. You’ll need to scrutinize balance sheets, profit and loss accounts, cash flow statements, and forecasts. Look for patterns, trends, and anomalies.

Is the company able to pay its debts as and when they fall due? Does the company have a viable future if given some respite from creditor pressure? Or is the company insolvent with no reasonable prospect of recovery?

In this stage, it is crucial to identify whether your company’s financial distress is temporary or terminal. A company that’s essentially healthy but experiencing temporary cash flow problems may benefit from a CVA. In contrast, if the company is insolvent and there’s no reasonable prospect of it improving, a CVL may be the more responsible and practical option.

Role of a Licensed Insolvency Practitioner

An insolvency practitioner plays an essential role in both a CVA and a CVL. In a CVA, they help to prepare the proposal, hold the creditors’ meeting and manage the process if the proposal is approved. In a CVL, they take control of company assets, sell them and distribute the proceeds to outstanding creditors.

Before you decide between a CVA and a CVL, it’s recommended that you consult with an insolvency practitioner. They can provide you with expert advice, tailored to your company’s situation and help you understand your duties and responsibilities as a director.

Importance of Professional Advice During the Voluntary Liquidation Process

Whether you are considering a CVA or CVL, professional advice is vital. Financial distress is complex and stressful, and the legal implications of getting it wrong are severe – including the risk of being held personally liable for the company’s debts in cases of wrongful trading.

An insolvency practitioner can guide you through the maze of insolvency legislation, provide realistic and practical advice, and help ensure that you meet your legal obligations as a director. If you’re in doubt, remember, seeking professional advice early can be the difference between the survival and failure of your company.

In any case, the objective is to make the best decision for the company, its employees, and its creditors. Remember, at Company Doctor, we are here to help. Please don’t hesitate to contact us on 0800 169 1536 for more information and guidance.

Next Steps and Further Support

Taking the first step to address your company’s financial distress can be a daunting prospect. It’s natural to feel overwhelmed, given the array of considerations and options such as a CVA or a CVL. However, it’s crucial to remember that you don’t have to face these challenges alone.

Professional advice and support are available to guide you through this complex process. From evaluating your company’s financial situation to making the most appropriate decision to ensure the best possible outcome, expert assistance can make a significant difference. This is where we at Company Doctor can help.

A CVL may be the solution to the company’s insolvency but other alternatives should not be ruled out before placing the company into insolvent liquidation.

Company Doctor – Here to Assist

At Company Doctor, we specialise in providing expert guidance to company directors facing financial distress. We understand the pressure you’re under, and our mission is to help you navigate your way to a solution that benefits you, your company, and your creditors.

Whether it’s the decision between a CVA and a CVL, managing a creditors’ meeting, or dealing with insolvency practitioners, we provide bespoke, professional advice tailored to your specific situation.

Our team consists of fully licensed insolvency practitioners with a wealth of experience, ready to assist and guide you through this challenging period. We provide clear, practical advice to help you understand your options and the implications of your decisions.

Contact Us for Further Assistance

No question is too small or complex for us. We’re committed to helping you make informed decisions during this crucial period. We invite you to reach out to us for a no-obligation discussion about your situation and how we can assist.

Contact us at Company Doctor on 0800 169 1536 for more information and support. We’re ready to provide the guidance you need to navigate the complexities of financial distress. Let us help you find the best possible solution for your company’s unique circumstances.


Understanding the intricacies and implications of both a CVA and a CVL is paramount for any director facing financial distress. These formal insolvency procedures, while complex, can provide a lifeline and a potential path to recovery or a controlled conclusion for a struggling company.

A CVA can enable a company to continue trading and manage company debts in a more sustainable manner, offering some breathing space from creditor pressure. On the other hand, a CVL provides an orderly winding down of a company that is beyond rescue, with the intent to treat creditors as fairly as possible given the circumstances.

The decision between a CVA and a CVL is a significant one, requiring a comprehensive understanding of each process, the company’s position, and the potential impacts on all stakeholders involved. This includes directors, shareholders, and of course, creditors.

At the end of the day, the right decision will depend on the specific circumstances of your company. Remember, professional advice from a fully licensed and authorised insolvency practitioner can be invaluable during this challenging time. It’s not a journey you need to embark on alone, and at Company Doctor, we’re here to guide you every step of the way.

No matter the path chosen, the ultimate goal is to navigate the process with transparency, integrity, and with the best interests of all parties in mind. Understanding the differences between a CVA and CVL is a crucial part of this journey for any company director.


What is the difference between a CVL and a CVA?

A CVA is an insolvency procedure that enables a company with debt problems to reach a legally binding agreement with its creditors about payment of all, or part of its debts over an agreed period. On the other hand, a Creditors’ Voluntary Liquidation (CVL) is a process designed to allow an insolvent company to close voluntarily, meaning the directors have chosen to bring the business to an end.

When should a company director consider a CVA?

A company director might consider a CVA when the company is facing financial distress, but the core business is still viable. The CVA allows for the company to continue trading, repay debts over time and ideally return to profitability.

When is a CVL the most appropriate choice?

A Creditors Voluntary Liquidation may be the best choice when a company is insolvent and cannot pay its debts. This process ensures an orderly wind down of the company’s operations, with the insolvency practitioner working to distribute company assets fairly among creditors.

Can a company director be held personally liable during a CVL or CVA process?

In most cases, a company director won’t be held personally liable for company debts during a CVL or CVA, as these are limited to the company as a legal entity. However, exceptions can occur, particularly if wrongful trading or personal guarantees are involved.

What is the role of an insolvency practitioner in a CVL and CVA?

An insolvency practitioner has a pivotal role in both a Creditors Voluntary Liquidation and CVA process. They advise on the best course of action, prepare the necessary paperwork, handle communication with creditors, and in the case of a CVL, they also oversee the liquidation process.

What happens to the company’s assets in a CVL and CVA?

In a CVA, the company’s assets are generally untouched as the business continues to trade and repay its debts. In a Creditors Voluntary Liquidation, however, the insolvency practitioner will liquidate the company’s assets to pay back creditors as much as possible.

What impact does a CVL or CVA have on the company’s creditors?

In a CVA, creditors often agree to reduced payments spread over a longer period, which can mean they do not receive full repayment. In a Creditors Voluntary Liquidation, the IP will distribute the proceeds from the sale of assets amongst the creditors, which may or may not cover the total amount owed.

How can Company Doctor assist in a CVL or CVA process?

Company Doctor can provide professional advice and support during these complex procedures. Our team can guide company directors through every step of the process, helping to ensure the best possible outcomes for all parties involved.


The primary sources for this article are listed below.

Companies House is a reliable source for explaining legal obligations related to CVAs and CVLs.

Details of our standards for producing accurate, unbiased content can be found in our editorial policy here.

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