What is the Difference Between an MVL and a CVL?

When you’re closing down a business, its financial position will have a huge effect on the route to closure. 

While many directors may have heard the terms Members’ Voluntary Liquidation and Creditors’ Voluntary Liquidation, they may not know the full difference between them or which one may be the most appropriate for their business. 

What is a Members’ Voluntary Liquidation?

A Members’ Voluntary Liquidation, or an MVL, is the formal process of winding up the affairs of a solvent company. This is a company that has more assets than liabilities, meaning it can pay off its debts. 

What is a Creditors’ Voluntary Liquidation?

A Creditors’ Voluntary Liquidation, or a CVL, is the process in which directors can formally close an insolvent company voluntarily. 

It is led by directors and shareholders of a company, and it enables the business to be closed down properly with all known creditors being consulted by an Insolvency Practitioner before the company enters liquidation. 

What are the main differences between an MVL and a CVL?

The main difference between the two is that an MVL is a winding-up process for solvent businesses, and a CVL is when directors of a company choose to liquidate their insolvent business voluntarily, rather than waiting for compulsory liquidation. 

The process for an MVL is initiated by company directors, and a liquidator will be appointed to oversee the sale of assets. Once the assets have been sold and the debts are paid off, any remaining funds will be distributed amongst shareholders.

An MVL can be a complex and time consuming process, but it does offer several advantages over other methods like bankruptcy.

A CVL is initiated by the company directors, who must first pass a resolution at a board meeting. Once this resolution is passed, the directors must then appoint an insolvency practitioner as a liquidator. 

The insolvency practitioner will then take control of the company’s assets and liabilities, and then proceed to pay off creditors. A CVL is typically used as a last resort when all other options to turn the company round have been exhausted. 

Which is right for my business: an MVL or a CVL?

Knowing what to do when your company is close to or is facing insolvency can be difficult. Generally speaking, if your company is solvent, an MVL would be right for your business. If your company is insolvent, then you may need to proceed to a CVL.