What Happens to Directors in a Creditors’ Voluntary Liquidation?

When an insolvent company enters creditors’ voluntary liquidation, its normal business activities stop, its assets are sold to repay debts, and it ultimately ceases to exist. This insolvency procedure is initiated by the directors but can only be carried out by an insolvency practitioner, who acts as liquidator. So what does this mean for the directors? In other words, what happens to directors in a CVL?

How Do Directors Place Their Company in a CVL?

If directors suspect their business has reached the end of the line, they must obtain specialist advice from an insolvency practitioner to determine how best to conclude its affairs. As experienced IPs, we can assess your company’s financial position and help you decide whether or not a CVL is the most appropriate option. We also arrange and carry out CVLs. So we’re well placed to shed light on what happens to directors in a CVL and related queries.

In order to place their company in a CVL, directors need to seek shareholders’ and creditors’ approval at two separate meetings. They can then ask their chosen IP to undertake the voluntary winding-up process as liquidator.

Are Directors Still in Charge in a CVL?

As soon as a CVL is in place, control of the business being liquidated passes from the directors to the liquidator. So when discussing what happens to directors in a CVL, it’s important to emphasise that their role changes significantly. They no longer have decision-making powers; instead, they assist the liquidator.

You may be aware that in addition to closing the firm down, the liquidator must investigate why it failed then report to the Insolvency Service. You’re probably wondering what happens to directors in a CVL when the liquidator’s investigation is taking place. The answer is they’re interviewed by the liquidator about events leading up to the CVL, as well as their business practices.

As long as you’ve acted lawfully and responsibly, you won’t be penalised (for example, by being disqualified from holding another directorship for several years). In fact, creditors’ voluntary liquidation can protect your reputation, as it shows you’re taking a proactive approach to company insolvency.

Are Directors Responsible for Repaying Debts?

A key task for the liquidator is to settle the company’s debts. What happens to directors in a CVL in relation to those debts depends on whether or not they personally guaranteed any sums the company borrowed. If they did, they’ll need to repay them using personal funds (unless the business recovers enough money to do so instead). If they didn’t, they won’t be asked to repay creditors themselves. When the CVL is complete, any remaining debt is written off.

Neither insolvent companies nor their directors fund redundancy packages. Staff claim redundancy pay from the government instead – and directors classed as employees can too.

Specialist Help to Voluntarily Liquidate Your Company

Once the voluntary winding-up is complete, the question ‘what happens to directors in a CVL?’ becomes ‘what happens to directors after a CVL?’ The answer, in a nutshell, is they move on with their lives and careers, no longer weighed down by company insolvency issues.

For specialist help to arrange a creditors’ voluntary liquidation, call Irwin Insolvency today on 0800 254 5122.


More on CVL from Irwin Insolvency

What is a CVL

Pros and cons of CVL

CVL timeline

How much does a CVL cost

Can you change liquidators in a CVL

Can you remove assets before a CVL

Can you stop compulsory strike-off by CVL


Contact Irwin Insolvency today for your free consultation

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0800 254 5122

About the author

Gerald Irwin

Gerald Irwin is founder and director of Sutton Coldfield-based licensed insolvency practitioners and business advisers, Irwin Insolvency. He specialises in corporate recovery, insolvency,
 rescue and turnaround.