Creditors’ Voluntary Liquidations (CVLs) are by far the most common UK corporate insolvency process. In the last ten years, CVLs have averaged 74% of all UK business failures, rising to 85% in the last three years. There have been an average of 16,808 CVLs per annum over the last ten years. In 2023, CVLs were at their highest levels for some twenty years.

When the Insolvency Service published a wide ranging and exceptionally detailed analysis of the outcome of recent CVLs in December 2024, its findings raised a number of major red flags for the owners of and stakeholders in struggling businesses.

The Insolvency Service’s headline findings:

• In 86% of the CVLs, there was no recovery for any class of creditor.
• The average cost of a CVL is 163% of the asset realisations.

The inescapable conclusion from these statistics is that by the time almost all companies are put into a CVL by its Directors, they are not only insolvent, but significantly and irretrievably so. There are a range of serious reasons why this matters.

1. Non-connected creditors

Every bad debt is problem to the creditor concerned, whether they are a supplier, a landlord or even a bank.  Research in 2024 by business software specialists Xero showed that delayed payments cost small businesses £1.6bn in 2023, double that seen in 2021.  Our article on the late payment scandal discussed the full extent of this endemic problem.

How much worse then for creditors when a late payment issue turns into a non-payment disaster. It’s worth remembering when a supplier with a profit margin of 10% suffers a £10,000 bad debt, they need to win an extra £100,000 in turnover just to cover that loss.

3. Employees

The theory is that unpaid employee entitlements from a failed company are protected by the government through the Insolvency Service’s Redundancy Payment Service, but that facility does not necessarily cover all entitlements because of the various limits within the scheme. Any amounts not covered will be a total loss for the employees when a company goes into a CVL and cannot pay its debts at all.

4. The taxpayer

The government and therefore by extension the taxpayer suffers when PAYE, NIC, VAT, Corporation Tax or any other tax liabilities go unpaid. This loss extends to the amounts underwritten by the Redundancy Payment Service for employees.

5. Connected creditors

The Shareholders and Directors of failed companies are often owed money for loans provided and will become liable for any unpaid company debts for which they have given personal guarantees, such as to finance providers, landlords and in some cases, suppliers.

Worse still, the financial crisis which precedes a CVL can prompt them to ask for emergency funds from family and friends, or use their personal credit cards to pay company liabilities. In certain circumstances, HMRC may have a claim against Directors personally for unpaid company tax debts.

6. Disqualification and other action

In every insolvency case (including CVLs), the Insolvency Practitioner concerned is obliged to investigate and report on the conduct of the company’s Directors.  This may lead to action by the Insolvency Service to disqualify them, or to pursue other claims against them for a variety of offences, including Wrongful Trading.

Delaying putting a company into a CVL so that there are no distributions to creditors leaves Directors at particular risk of committing that offence and being deemed personally liable for at least some of their company’s debts.

The moral of the Insolvency Service research

It may be that in some cases, the size of a failed company means that the costs of putting it through a Creditors’ Voluntary Liquidation will always mean that there will be nothing left for the creditors. Despite this, the longer a struggling company without a viable future continues to trade, the greater the chance of that unsatisfactory outcome.

Avoiding such an outcome is the responsibility of the Shareholders and Directors. Prompting proactive and decisive action should be on the agenda of those professional advisers close enough to a business to know the situation. Delaying that action may be entirely understandable, but that does not make it right.

If you are considering professional advice for your business, Opus is here to provide independent assistance. You can speak to one of our Partners, who can discuss options with you. We have 14 offices nationwide and by contacting us on 020 3995 6380, you will be able to receive immediate assistance from our Partner-led team.