In December 2024, the Insolvency Service released a landmark research report into Creditor’s Voluntary Liquidations (CVLs), which pulled back the curtain on how these insolvencies are really being carried out on the ground. You can read the full report here:
👉 CVL Research Report – Insolvency Service
Its findings were stark. CVLs now make up 85% of all corporate insolvencies in the UK, and in around 40% of them, the company’s assets were insufficient to cover the cost of the process. In 14% of cases, no assets were realised at all.
Let’s be clear what that means: Insolvency Practitioners (IPs) are often carrying out liquidations where there is no money in the pot to pay their fees. So, who pays?
In Most Cases, the Directors Do
We’re not talking about large corporations here. We’re talking about small limited companies, family-run firms, local traders, businesses that have been struggling and are now at the end of the road.
Directors, who are often also the shareholders, are being asked to personally fund the liquidation of their companies. Sometimes this is done via an upfront payment, sometimes through a director’s guarantee, and sometimes (more worryingly) they are told they can pay from redundancy claims that may never materialise.
But here’s the thing: there is no legal duty on a company director (or shareholder for that matter) to pay for the cost of winding up their company. Not in a CVL. Not in a Compulsory Liquidation. Not anywhere. Limited companies are, by definition, limited liability vehicles.
Yet, the Insolvency Service’s report shows that in 761 cases (33%), the IP received no payment at all from company assets for their post-appointment work. In over 700 other cases, recoveries were less than 20% of time costs, making it clear that directors are footing the bill in many CVLs.
The Real Cost of a CVL
Let’s put some numbers to this.
-
Median total fees per CVL: £12,937
-
Median assets realised: £5,798
-
Median post-appointment fees: £10,004
-
Median cost relative to asset value: 163%
One commentator put it like this: “Putting your company into liquidation now costs more than putting a second-hand car on your drive.” And that’s if there are assets. If there aren’t? Expect to pay out of your own pocket.
The Insolvency Service included three powerful graphs in their report, which I recommend every director studies:
-
A chart showing post-appointment fees – highlighting how often IPs earn substantial sums even when companies are asset-poor.
-
One detailing the total of pre- and post-appointment fees – further underlining the cost of the process.
-
A graph of recovery rates – revealing how often IPs are paid little or nothing from realisations, suggesting a heavy reliance on directors’ personal funds.
What Is Best Advice – and Who Is It For?
This is where the ethics come in.
At the time an IP is first engaged, our duty is to the director. We’re being asked to give advice to a director, who is our potential client, about their options. That means:
-
Assessing whether there’s a business to save.
-
Considering whether a CVL is appropriate – or whether simply ceasing trade and writing to creditors could satisfy directors’ duties more proportionately.
-
Crucially, explaining that directors have no legal duty to fund a liquidation.
Too often, however, directors are ushered down the CVL route by salespeople working for what the Insolvency Service calls ‘CVL factories’. These are firms pushing low-cost CVLs with high-volume models – somewhere between a production line and a call centre. And too often, the full implications are not explained. (By the way, you will often find these factories advertising on Facebook)
The Problem with Personal Guarantees
Let’s talk about personal guarantees. These are often required by IPs in low-asset CVLs. But they come with three major problems:
-
Cash-poor directors: Many have just lost their only income and are financially stretched.
-
Unlimited liability: Guarantees often have no cap. And IPs can (and do) return years later demanding tens of thousands of pounds.
-
No control over costs: Once signed, the director has no say in how much the IP bills them for. And IPs’ hourly rates are high, very high compared to your local garage.
I have seen directors hit with surprise bills for £10,000 or more (yes, I’ve even seen £35,000 several times) two years after the liquidation began: costs they were told would be covered or ‘minimal’ at the outset.
What About Redundancy Claims?
There’s a growing trend of directors being told they can use money from the Redundancy Payments Service (RPS) to fund the IP’s fees. But this is often a false promise. Why?
-
The RPS pays employees, not directors.
-
Most SME directors have no contract of employment, no holiday entitlement, and are often paid irregularly or paid through the PAYE system under the national minium wage.
-
Their claims are usually rejected by the RPS, because they are deemed not to be employees (what employees would put up with being treated in the way in the previous bullet point?).
In short, relying on a redundancy payment to cover CVL fees is risky and often ends in disappointment.
My Approach
At Midlands Business Recovery, I never ask for personal guarantees. Here’s why:
-
If the assets are there (even on paper), but I’m unsure about their realisation, I do more work to get certainty.
-
If there are clearly no assets, I consider whether another route is more appropriate than a CVL -one that still meets the directors’ duties but doesn’t land them with a bill they can’t afford.
Because this is about integrity. It’s about doing the right thing- even if that means not getting paid.
A Final Word: This Is About Ethics
There are times when a director-funded CVL may be the right choice, such as where employee claims can trigger RPS payments or when regulatory compliance makes liquidation necessary.
But these are the exceptions, not the rule.
CVLs where the directors personally pay, particularly when there are no assets, account for nearly 40% of the CVLs reviewed by the Insolvency Service. That’s far too many.
We, as insolvency professionals, must do better. We must remember who our duty is to when advice is first sought. We must explain all the options. And we must put integrity above income.
Need Advice?
If you’re a director of a small company and you’re being told that a CVL is your only option, and that you’ll need to pay for it personall, either get in touch or visit my website and ask my bot, VAi – still the only bot in the UK to use generative ai to give people like you best advice. You see, there may be – frankly probably is – a better way.
📞 07813 102014
📧 paul@midlandsbusinessrecovery.co.uk
🌐 midlandsbusinessrecovery.co.uk