Cost of a CVL: How Much Does a Creditors’ Voluntary Liquidation Cost?

If your company is one of the many facing financial difficulties in the current economic climate, you may be considering insolvency options. You’re certainly not alone, nor do you need to be through this challenging time. Professional insolvency practitioners can help make your insolvency options clearer and guide you on the most suitable outcome for your company.

UK Government statistics cite that in 2023 there were 25,158 registered company insolvencies, with the greatest portion of those (20,577) being creditors’ voluntary liquidations (CVLs).

As a company facing insolvency, you may be wondering how much does a CVL cost and who bears the cost?

Who Pays for a CVL?

Creditors’ voluntary liquidation (CVL) is a voluntary decision taken by shareholders of a company when the company is no longer able to meet its financial commitments and becomes insolvent. 75% of shareholders (by value) must agree to the winding-up resolution for it to go ahead. What is included in creditors’ voluntary liquidation cost and who pays for a CVL?

The fees associated with a CVL are considered a business expense as part of liquidating (winding-up) the company and are generally paid out of the company’s assets once they are realised.

There are two stages to creditors’ voluntary liquidation:

1. Pre-appointment stage
2. Post-appointment stage

Both stages have costs associated with them, which may be decided and paid for on different bases.

The pre-appointment stage is where the liquidator (an insolvency practitioner) assists the directors of the company to place the company into CVL. The creditors’ voluntary liquidation cost of the pre-appointment stage is generally a fixed fee.

The post-appointment stage involves the liquidator (an insolvency practitioner), administering the CVL process. This includes all the legalities involved in a CVL, as well as the sale and distribution of assets and administrative requirements such as sending the resolution to the Companies House, advertising the resolution in The Gazette, and attending to final VAT costs with HM Revenue and Customs.

UK Government legislation provides for appointment of liquidator’s fees. They may be fixed on one or more of the following bases:

1. As a percentage of the value of the assets which are realised, distributed, or both by the liquidator.
2. By reference to the time properly given by the liquidator and his/her staff in attending to matters arising in the liquidation.
3. As a set amount.

The CVL is generally paid for out of the funds realised when the assets of the company have been sold. In certain circumstances, directors of the company may choose to personally pay for the fees associated with the CVL. One of the benefits of voluntary liquidation is that the directors may be eligible for Director’s Redundancy Payments (through the National Insurance Fund). Directors may choose to use some of their redundancy payment to cover the costs of the CVL.

How Much Does a CVL Cost?

There isn’t a set monetary amount for creditors’ voluntary liquidation cost. Every company is different as are the circumstances surrounding liquidation, including assets owned and debts owed. In considering how much does a CVL cost there are several key factors to keep in mind which are governed by UK regulations. As part of the pre-appointment stage creditors will be asked to vote to approve a proposal of the creditors’ voluntary liquidation costs based on UK rules governing liquidator fees.

Rule 18.16 says that in arriving at its decision the committee shall have regard to the following matters:

• the complexity (or otherwise) of the case;
• any responsibility of an exceptional kind or degree which falls on the liquidator in connection with the insolvency;
• the effectiveness with which the liquidator appears to be carrying out, or to have carried out, his duties;
• the value and nature of the property with which the liquidator has to deal.

The complexity and value of assets realised by the liquidator and the number of creditors to which the funds need to be dispersed will all form a part in the proposal by the liquidator for their fees, and in turn will affect how much does a CVL cost.

Professional Advice for Creditor’s Voluntary Liquidation

We understand it can be an unsettling time when your company becomes insolvent, and you are considering voluntary liquidation. Having the guidance and expertise of professional and experienced insolvency practitioners can make all the difference as your company faces this final challenge. Contact Irwin Insolvency for the information and assistance you need to understand creditors’ voluntary liquidation.