A directors voluntary liquidation, is more commonly known as a creditors voluntary liquidation, or CVL. It is a process that a director takes to close down a company which is insolvent. It is by far the most favoured route for an insolvent company to take. As many as three thousand companies a quarter now take this route, during this recession.

When proposing a CVL, the directors of the company report to shareholders that the company cannot continue to trade due to insolvency. This will be either that its liabilities are greater than its assets, or that the company cannot pay its debts as and when they fall due. A clear indication of this will be if PAYE and tax cannot be paid on due dates. Many directors use the Crown as an involuntary debtor as it is usually a number of months before they get chased by the Crown authorities for this unpaid tax, and in this time this cash can be used for other purposes, such as cash to pay suppliers.

A director will also be aware if the company bank account is continually at its maximum, or cheques are being returned, that steps need to be taken to eradicate losses.

Once the director has reported to his shareholders, and in many small companies the shareholder and directors will be one and the same, they can ask an Insolvency Practitioner to prepare a statement of affairs which sets out the financial position of the company and explains why it is the case that the company cannot trade on and needs to be closed down.

It will give an indication of the return if any, that creditors can expect to see. Very few liquidations offer a return of any sort, due to the paucity of assets, compared to the high costs sometimes incurred in formally liquidating the company.

The meeting takes place at least two weeks after notice has been given. Directors are expected to be in attendance, as this will be the chance that the creditors have to quiz the directors as to why the company had failed. Ultimately though the company will be closed and the directors can move on to other projects leaving the liquidator to complete the compliance issues and file the necessary paperwork to strike the company off.