How a Scottish CVL Works
A Creditors’ Voluntary Liquidation (CVL) is the main voluntary procedure used to close an insolvent Scottish company. Although the overall purpose is straightforward, the Scottish process has a number of procedural differences from the equivalent process in England and Wales.
Lennox Insolvency guides directors through each stage: reviewing the company’s financial position, preparing the necessary information, arranging the shareholder and creditor procedures and placing the company into liquidation.
The Scottish CVL process at a glance
- The directors take advice and establish whether the company is insolvent and whether liquidation is appropriate.
- The company’s financial information is prepared, including details of its assets, liabilities and creditors.
- The shareholders pass a special resolution to wind up the company voluntarily.
- Creditors are asked to decide on the liquidator through deemed consent or a decision procedure conducted virtually.
- An authorised insolvency practitioner becomes liquidator and takes control of the company’s affairs.
- The required notices and filings are made with bodies including Companies House, the Accountant in Bankruptcy and the Edinburgh Gazette.
- The liquidator administers the company, realises assets, deals with creditors and completes the statutory work.
- The company is ultimately dissolved once the liquidation has been completed.
Step 1
Review the company’s financial position
The process should start with a proper review of the company rather than an assumption that liquidation is inevitable.
We will normally look at matters including:
- Cash available to the company
- HMRC arrears
- Amounts owed to suppliers and other creditors
- Bank and finance liabilities
- Company assets
- Outstanding customer invoices
- Employees and employment liabilities
- Current and expected trading performance
- Director’s loan accounts
- Personal guarantees
- Legal or enforcement action already being taken by creditors
The objective is to establish whether the company can realistically recover or whether continuing to trade is likely to worsen the position.
If there is a viable rescue or restructuring option, this should be considered before proceeding with liquidation.
Step 2
The directors decide how to proceed
Once the company’s position has been reviewed, the directors decide whether to recommend that the company be placed into Creditors’ Voluntary Liquidation.
At this stage we will explain:
- Why a CVL is being recommended
- Any realistic alternatives
- What the directors need to do before liquidation
- What information and records are required
- What will happen to employees
- What will happen to company assets
- Any obvious issues affecting the directors personally
- The likely cost of the liquidation
- The expected timetable for placing the company into liquidation
Step 3
Prepare the company information
The insolvency practitioner will require sufficient information to understand the company’s financial affairs and prepare the documentation needed for the liquidation.
Directors will usually be asked to provide information such as:
- Recent accounts and management information
- Company bank statements
- A list of creditors and amounts owed
- HMRC liabilities
- Details of company assets
- Amounts owed to the company
- Employee details
- Finance agreements
- Details of legal proceedings
- Director’s loan account information
- Details of significant transactions
- Company books and accounting records
Do not be concerned if the company’s records are not completely up to date. We can explain what information is essential and help identify what is still required.
Step 4
A statement of affairs is prepared
A statement of affairs provides creditors with a summary of the company’s financial position.
It will normally identify:
- The company’s assets
- The estimated value of those assets
- Secured and preferential claims where relevant
- Amounts owed to unsecured creditors
- The estimated financial shortfall
The directors provide the information required to prepare the statement and are responsible for ensuring that the information supplied is accurate to the best of their knowledge.
Step 5
The shareholders resolve to wind up the company
A CVL is formally initiated by the company’s shareholders.
The shareholders consider a special resolution that the company should be wound up voluntarily. A special resolution requires the necessary 75% majority.
The company enters voluntary liquidation when the winding-up resolution is passed.
This is an important distinction: the commencement of the liquidation is tied to the shareholder resolution rather than simply to the date on which the directors first decide to seek insolvency advice.
Step 6
The Scottish creditors’ decision
Creditors have a statutory opportunity to decide on the nomination of a liquidator. The directors give notice using deemed consent or a decision procedure conducted virtually.
The creditors’ decision date must be at least three business days after the notice is delivered and no later than 14 days after the winding-up resolution is passed.
The directors prepare and send the statement of affairs within the statutory seven-day period. Creditors must receive it by the business day before the decision date so that they can consider the company’s position.
The directors must send the required notices and statement of affairs and arrange the decision procedure.
The company may nominate an insolvency practitioner as liquidator, while creditors also have statutory rights in relation to the appointment.
Do creditors decide whether the company can go into liquidation?
No. Creditors do not vote on whether the shareholders are allowed to wind the company up.
Once the shareholders have validly passed the special resolution, the company has entered voluntary liquidation.
Creditors nevertheless have important rights in the process, including receiving information about the company and participating in the appointment of the liquidator.
Step 7
The liquidator takes control
The liquidator must be an authorised insolvency practitioner.
Once appointed, the liquidator becomes responsible for winding up the company’s affairs. The directors no longer manage the company in the ordinary way, although they remain required to provide information and co-operate with the liquidator.
The liquidator’s work can include:
- Taking control of the company’s books and records
- Securing and realising company assets
- Collecting money owed to the company
- Dealing with creditor claims
- Dealing with employee matters
- Reviewing the company’s financial affairs
- Considering transactions entered into before liquidation
- Reporting on director conduct where required
- Making distributions to creditors where funds permit
Step 8
Scottish liquidation notices and filings
A Scottish CVL involves a number of formal notifications and public filings.
Winding-up resolution
The special resolution to wind up the company must be advertised in the Edinburgh Gazette within 14 days and sent to the Registrar of Companies for Scotland and the Accountant in Bankruptcy within 15 days.
Creditors’ decision
Creditors receive formal notice seeking their decision on the nomination of a liquidator. The Edinburgh Gazette notice relates to the winding-up resolution, while the liquidator’s appointment has separate notification requirements.
Liquidator’s appointment
The liquidator must make the required notifications following appointment, including publication of the appointment in the Edinburgh Gazette and notification to the Accountant in Bankruptcy.
These Scottish filing and notification requirements are one reason why directors of Scottish companies should ensure the procedure they are following is genuinely designed for Scotland.
What happens to the directors once the CVL starts?
The directors’ role changes significantly once the company enters liquidation.
You will normally need to:
- Hand over the company’s books and records
- Provide explanations and information requested by the liquidator
- Identify company assets
- Provide information about significant transactions
- Assist with outstanding company matters where requested
- Keep the liquidator informed of relevant information that comes to light
The liquidator will also review relevant aspects of the company’s affairs and director conduct as part of the statutory insolvency process.
This does not mean that directors are assumed to have done anything wrong simply because the business has failed.
Should the company stop trading before the CVL?
There is no rule that gives the same answer for every company.
Once insolvency has become a concern, directors must consider creditors’ interests carefully and should avoid taking steps that unnecessarily worsen the company’s financial position.
In some circumstances trading should cease quickly. In others, limited continued trading may be appropriate while an orderly closure, sale or insolvency process is arranged.
Take advice before making that decision. Continuing to incur liabilities without a reasonable basis for doing so can create unnecessary risk for both the company and its directors.
How quickly can a Scottish company enter a CVL?
The exact timetable depends on how quickly the company’s information can be prepared and the statutory notices can be arranged.
Once the winding-up resolution is passed, the creditors’ decision date must fall at least three business days after notice is delivered and no later than 14 days after the resolution. The statement of affairs must reach creditors by the business day before the decision date.
The preparation period before the resolution will vary from case to case. A straightforward company with good accounting records can generally be prepared more quickly than a business with complex assets, incomplete records or urgent legal issues.
What if a creditor has already started legal action?
If HMRC or another creditor has already taken formal enforcement action, tell us immediately.
A winding-up petition, court proceedings, bank account arrestment or other diligence can materially affect what options remain available and how urgently action is required.
Do not assume that starting a CVL automatically stops proceedings that have already begun.
Scottish CVL Process FAQs
Does a CVL require a court hearing?
Normally no. A CVL is a voluntary liquidation procedure initiated by the company rather than a compulsory winding up ordered by the court.
When does the company officially enter liquidation?
The voluntary liquidation starts when the shareholders pass the special resolution to wind the company up.
Do creditors have to agree to the CVL?
Creditors do not approve or reject the shareholders’ decision to wind up the company. They do, however, have statutory rights in the Scottish CVL process, including rights relating to the appointment of the liquidator.
What must directors do for the creditors’ decision?
The directors send creditors the required notice and statement of affairs and arrange the statutory decision procedure with the proposed liquidator.
Do I need perfectly up-to-date accounts before starting?
No. Good financial records make preparation easier, but directors should not delay seeking advice simply because the bookkeeping or accounts are incomplete. We can identify the information that is actually needed.
Who deals with the company after the liquidator is appointed?
The liquidator becomes responsible for winding up the company’s affairs. Directors remain responsible for co-operating and supplying information but no longer operate the company in the ordinary way.
Considering a CVL for a Scottish company?
If your company cannot pay its debts, we can review the position with you and explain the Scottish CVL process before you make any decision.
The initial discussion is confidential and does not commit you to proceeding with liquidation.