Creditors Voluntary Liquidation (CVL)


In a Creditors' Voluntary Liquidation (CVL) in Australia, shareholders vote for liquidation upon recognising the company's insolvency. This process, overseen by a licensed insolvency practitioner, aims to equitably distribute assets to creditors and involves scrutinising the company's financial affairs and potentially the directors' conduct.

What is a Creditors’ Voluntary Liquidation?


A Creditors’ Voluntary Liquidation occurs when the directors, members or shareholders of a company determine that the business is insolvent, or that it is likely to become insolvent. Creditors’ Voluntary Liquidation must be approved by the majority of shareholders.

The major benefit of a CVL is that it allows company members to wind up the business’ affairs without a Court order. This can simplify the liquidation process and ensure the directors are meeting their obligations. Similar to regular liquidation proceedings, the CVL process is administered by a registered independent Liquidator.

It is the responsibility of the Liquidator to gather, realise and distribute the business’ assets while also investigating the company’s finances and the reasons for its failure.

What causes a Creditors’ Voluntary Liquidation?


A Creditors’ Voluntary Liquidation must be approved by the majority of a company’s members or shareholders. There are several circumstances that may cause a company’s members to approve a CVL:

  • If the company can no longer satisfy its debts and is determined to be insolvent, or likely to become insolvent

  • At the end of a Voluntary Administration

  • If a Deed of Company Arrangement (DOCA) has been terminated

Companies commonly enter into a CVL due to ongoing financial difficulties. Trading while insolvent is illegal and carries serious consequences, so company directors may approve a CVL to minimise the risk of insolvent trading. Similarly, while a CVL is initiated internally, external pressures such as recovery actions by the ATO and Directors’ Penalty Notices (DPN) may cause a company’s members to approve and enter into a CVL.

The Creditors’ Voluntary Liquidation Process


Company members appoint a Liquidator

The Creditors’ Voluntary Liquidation process commences when company members approve the motion and appoint a Liquidator. The Liquidator must be an independent third party that is registered with ASIC.

The Liquidator notifies ASIC

Once appointed, the Liquidator takes immediate control of the business. Their first duty is to notify ASIC, the ATO and any other government revenue offices of the liquidation.

The Liquidator contacts creditors

The Liquidator will publish notices of the liquidation and contact any creditors. Creditors are informed of their rights and given the opportunity to provide evidence of outstanding debts, as well as any information they may have about the company’s affairs.

Company assets are realised

The Liquidator will assess the company’s finances and collect and secure any assets. These assets are liquidated and the proceeds of the sale are collected for later distribution.

Distributions are made to creditors

With the company’s assets realised, the Liquidator makes distributions to creditors based on the predetermined order outlined below.

The company is deregistered

The final step of the Creditors’ Voluntary Liquidation process is to deregister the company with ASIC. At this point the company ceases to exist and most outstanding debts or claims are void.

Distributions of Assets in a Creditor’s Voluntary Liquidation


Creditors’ Voluntary Liquidation has an impact on all company creditors, including employees. The money collected from the sale of company assets is held by the Liquidator and distributed as a “dividend” to outstanding creditors. Under the Corporations Act 2001, the rights of employees are given priority over other unsecured creditor claims, and dividends are allocated in the following order:

  • The Liquidator’s fees and expenses
  • Employee wages and superannuation
  • Employee leave entitlements
  • Employee retrenchment pay
  • Unsecured creditors

Each of the above categories must be paid in full before the next category can receive a distribution. If there are insufficient assets to pay a category in full, the affected creditors are paid a pro rata dividend. It’s worth noting that there is a government scheme which covers outstanding wages, leave and retrenchment payments. This scheme can take care of employee entitlements in most instances, even where the company’s assets may not be sufficient to cover them.

Creditors’ Voluntary Liquidation does not affect a secured creditor’s right to enforce their security. However, it’s common for secured creditors to allow secured assets to be sold during a liquidation, provided their rights are protected by the Liquidator.

What are the expected outcomes of a Creditors’ Voluntary Liquidation?


Once all assets have been realised, investigations are completed and distributions to creditors are made, the Liquidator will apply to ASIC to deregister the company. Creditors no longer have any claim against the company at this point.

Advantages of a Creditors’ Voluntary Liquidation


  1. Control over the timing. The decision to enter into Creditors’ Voluntary Liquidation (CVL) can be made by the company’s directors or shareholders. This means the company’s major stakeholders have control over the timing of the liquidation. That control allows the company to prepare for liquidation, look after employee concerns and gather information the Liquidator will need to conduct their affairs.

  2. Ensures directors are meeting their obligations. In Australia, directors have a duty to act in the best interest of their company. If the company becomes insolvent, or if it’s likely to become insolvent, the directors can approve a CVL to avoid trading while insolvent and meet their other obligations.

  3. Most debts are forgiven. Most of a company’s outstanding debts are forgiven at the end of the liquidation period. At the end of the process, the company ceases to exist and creditors cannot pursue remaining debts. Directors may be held personally responsible for some debts though, and those debts may persist after the liquidation is complete.

  4. Reprieve from legal action. After a company goes into liquidation, unsecured creditors are prevented from commencing or continuing legal action. This gives directors a reprieve from dealing with creditors and allows creditor claims to be dealt with in an orderly fashion.

  5. Liquidator deals with creditors. Once appointed, the Liquidator is responsible for managing all communication with creditors. Creditors can no longer contact the company or its directors. This can be a major relief in situations where you have been receiving calls, letters and visits from creditors.

  6. Better outcomes for employees. Employees are some of the most affected stakeholders during liquidation. By entering into a CVL, directors can better prepare their employees for what lies ahead and provide support for things like accessing the Fair Entitlements Guarantee.

How can SV Partners help?


In order for a debtor to propose a Personal Insolvency Agreement, they must appoint a Registered Trustee, such as SV Partners. Once SV Partners is appointed, we conduct our investigations, report to creditors on your behalf and structure a proposal that is beneficial to all parties involved.

SV Partners will guide you through the process, providing support every step along the way of administering your Personal Insolvency Agreement. Our services are designed to alleviate the pressures you may be facing from creditors.

For more information about Personal Insolvency Agreements, visit our FAQ section or our complete guide to liquidation. Alternatively, to discuss your situation and see how our team can help, contact us on our confidential assist line on 1800 246 801 for an obligation free consultation.