Difference Between Compulsory and Voluntary Liquidation

Is a Creditors' Voluntary Liquidation or Members' Voluntary Liquidation suitable for my business?

Liquidation is a formal insolvency process in which a liquidator is appointed to 'wind up' the affairs of a limited company.

There are a variety of reasons why a business might enter liquidation and this process can be instigated either by the company director(s) (voluntary liquidation) or by a creditor (compulsory liquidation).

Insolvent Liquidation

Compulsory liquidation occurs when a company cannot afford to pay its debts and a creditor or multiple creditors take legal action in pursuit of the money owed.

Voluntary liquidation generally happens under very similar circumstances with the key distinction being that an insolvent company’s directors decide to take their business into liquidation before the point at which they are forced to do so by creditors.

In both cases, liquidation is a consequence of being insolvent and having no realistic prospect of a viable business going forward – thus ruling out other formal insolvency procedures such as administration.

Types of Voluntary Liquidation

There are two forms of voluntary liquidation, which are described respectively as Creditors Voluntary Liquidations (CVLs) and Members Voluntary Liquidations (MVLs).

A CVL is a voluntary process but one that is essentially an admission on the part of a company’s directors that their business is no longer sustainable and is in fact insolvent. 

An MVL is quite different and it can function as a way for cash to be generated through the voluntary liquidation of a particular company. However, an MVL can only be pursued when a business is solvent and able to meet its liabilities. If your business is unable to pay its debts, a CVL is the only form of voluntary liquidation available as an option.

Why enter Liquidation Voluntarily?

An MVL is a means through which a company might be voluntarily liquidated to close a company in a tax-efficient manner. Often this will be when the directors of a group of companies decide that a particular aspect of their operation should be discontinued and liquidated despite its being solvent and viable.

But entering a Creditor’s Voluntary Liquidation can also be beneficial for a company and its directors. Among the main advantages of entering a CVL rather than waiting to be forced into liquidation are that a company can prepare more thoroughly for what the future might bring and staff redundany procedures can commence more quickly.

Director Duties

Acting as a director of a financially distressed company will often create dilemmas and deciding whether or not to enter liquidation voluntarily can be a very tough call to make. However, directors have a responsibility to admit as much when their company is insolvent and there are potentially very serious ramifications for anyone found guilty of operating a business they knew to be insolvent.

This often means that entering voluntary liquidation is a prudent course of action if you are leading a business that is unable to pay its debts and which will inevitably be rendered insolvent at some point in the future.

Even honest mistakes can be interpreted as misconduct when liquidation is entered on a compulsory basis and the result can be directorial disqualifications, fines and potentially the prospect of directors becoming personally liable for company debts once their actions have been investigated.

If you have any queries about the various liquidation processes or you would like further clarification on the distinction between voluntary and compulsory liquidation, you can contact any Begbies Traynor office around the UK. Our insolvency experts will be happy to help and offer a free initial consultation.

Network of Over 100 UK Offices

Find your local Begbies Traynor Group office and speak to an adviser today.

Find your Local Office
0800 063 9221

Call our Confidential Advice Line. Calls to this number are free of charge.

Call us now...
Request a Meeting

We invite you to come and discuss your enquiry with us at your convenience.

Request a meeting...
0800 464 0871

Call our Confidential Advice Line. Calls to this number are free of charge.

Call us now...
Request a Meeting

We invite you to come and discuss your enquiry with us at your convenience.

Request a meeting...
0161 837 1700

Call our Confidential Advice Line. Calls to this number are free of charge.

Call us now...
Request a Meeting

We invite you to come and discuss your enquiry with us at your convenience.

Request a meeting...
Begbies Traynor Group plc, announces that it has completed the acquisition of CVR Global LLP
CVR is a leading independent firm of insolvency practitioners, forensic accountants and experts in other related complementary disciplines.
Read More →
Coronavirus pushes financially distressed companies over the half-million mark
Number of businesses in significant distress stands at 509,000 – the highest number measured by the Red Flag Alert research
Read More →
BTG Advisory accelerates growth with appointment of four new partners to its London office
BTG Advisory, the boutique advisory arm of Begbies Traynor Group announces the appointment of four new partners to its Canary Wharf office
Read More →
Eighty jobs saved with £1m sale of engineering business
South Yorkshire company Newburgh Precision rescued through administration
Sale enables 75-year-old business to continue trading
Read More →
Join thousands of professionals by signing up for our updates
Analysis and Opinion from our Partners
Top Industry News
Register Now →

Advice you can trust

We are accredited by the following industry leading organisations

Insolvency Practitioners Association Institute of Chartered Accountants in England and Wales R3: Association of Business Recovery Professionals ICAEW Business Advice Service Turnaround Management Association ICAS | The Institute of Chartered Accountants of Scotland

Contact the Begbies Traynor Group team

or Find your Nearest Office

Here at Begbies Traynor Group we take your privacy seriously and will only use your personal information to contact you with regards to your enquiry. We will not use your information for marketing purposes. See PRIVACY POLICY


This site uses cookies to monitor site performance and provide a more responsive and personalised experience. You must agree to our use of certain cookies. For more information on how we use and manage cookies please read our PRIVACY POLICY