I’m going to start with something that surprises a lot of directors.
If your company has no assets, and you’re being told you “must” pay personally to put it into a Creditors’ Voluntary Liquidation (CVL)… pause.
Breathe.
Then ask one simple question: “Where does it say I have to do that?”
Because in general terms, there is no legal obligation in statute or case law that forces directors or shareholders to spend their own personal money to put a company into liquidation.
Yes, directors have duties when a company is insolvent. Yes, you must act properly, minimise creditor losses, keep records, and avoid making matters worse.
But that is not the same as: “You personally must write a cheque for a liquidation you cannot afford.”
So why do directors ever choose to fund a CVL from their own pocket?
Sometimes it’s a very sensible decision. Sometimes it’s not. And sometimes, bluntly, it’s because a service is being sold that isn’t strictly required.
Let’s talk about the difference.
The uncomfortable bit: some insolvency firms’ business models rely on director-funded CVLs
Most insolvency practitioners I know take pride in giving directors straight advice, even when it means recommending a cheaper or free route.
But we also have to be honest about the market. Some firms run a volume model that depends on directors paying up front for a CVL, even where the company has no assets and there are other options.
That doesn’t automatically mean the advice is wrong. It does mean you should pressure-test it, because when you’re stressed, exhausted and frightened, it’s very easy to agree to something just to make the problem go away.
And for the avoidance of doubt: it’s well overdue that regulators look harder at the pre-appointment advice given by IPs, not just the compliance mechanics once an appointment has been taken. If the front-end advice is skewed, the rest is just window dressing.
So, why might you choose to pay for a CVL anyway?
Here’s the practical list. I’ll set these out as clearly as I can, because this is where directors often have an “oh… that might actually apply to me” moment.
1) Employees need redundancy payments from the RPS
If you have employees, a formal insolvency process can unlock statutory payments via the Redundancy Payments Service (RPS), such as redundancy, arrears of pay, holiday pay and notice pay (subject to rules and caps).
If you simply close the doors and do nothing, employees can be left in limbo. A properly run CVL can bring structure and certainty.
This is one of the strongest reasons directors fund a CVL when there are no assets. But beware, Directors’ claims for redundancy etc come under far greater scrutiny than those of employees, and there is every chance your claim will not be met, so don’t go into a CVL in the hope that your redundancy pay will pay the IP’s costs for doing it!
2) You need lease and contract liabilities dealt with formally
Property leases are the classic one.
A liquidator has the power to disclaim onerous property and certain contracts. That can bring the company’s ongoing liabilities to an end (subject to the landlord’s claim ranking in the liquidation).
If your company has a nasty lease problem, a CVL can be the cleanest way to draw a line under it.
Similar logic can apply to other long-term commitments where you need a formal “end point”.
3) You want an organised, controlled closure (rather than chaos)
Directors often underestimate the sheer volume of loose ends:
- closing payroll properly
- issuing P45s
- dealing with final VAT/PAYE returns/deregistering
- responding to creditors
- dealing with customer complaints and warranties
- sorting out company records
- ceasing insurances and utilities
- handling stock or waste responsibly
- returning hired equipment
When you’re already on your knees, the idea of handing that closure process to a third party can feel like a lifeline.
And sometimes, it genuinely is.
4) You want to choose the liquidator rather than ending up with the Official Receiver
If the company ends up in compulsory liquidation (for example following a creditor petition), the Official Receiver (a civil servant) is automatically involved at the start.
Some directors would rather appoint their own insolvency practitioner in a CVL, who can:
- communicate more commercially
- keep the process moving
- provide clearer explanations
- reduce the feeling of being “processed” by the system
That preference is not always rational, but it’s common.
5) You want to reduce the risk of a creditor winding-up petition
If you can see a petition coming, a CVL can sometimes be the calmer, more controlled route.
Not always. But if a creditor is aggressive, or you’ve got a landlord, HMRC, or a trade supplier threatening action, directors sometimes fund a CVL to avoid the reputational damage and business disruption that comes with petitions.
6) You need a formal process to handle regulated or sensitive issues
Some businesses have obligations that make a sloppy shutdown risky:
- regulated sectors
- client money issues
- health and safety concerns
- environmental obligations
- licences and permits
- data protection and records retention
A CVL can create an accountable process with clear stewardship of records and decisions.
7) You are personally exhausted and need someone to take the wheel
This is more common than people admit.
I’ve had directors sit in front of me and say, quietly, “I just can’t do this anymore.”
They’re not being dramatic. They’re depleted.
A CVL can be a way to hand responsibility to a professional, stop the mental spiralling, and bring order to the mess.
If that’s you, you’re not weak. You’re human.
8) There are assets, but not the obvious kind
Sometimes directors say “no assets” when what they mean is “no cash”.
But there may be realisable:
- book debts
- stock
- claims (for example against customers, insurers, or even against directors personally, which is a separate point)
- refundable deposits
- overpaid taxes
- asset finance rebates
- intellectual property
- plant and machinery
Even modest realisations can fund a CVL. And if that’s the case, the “you must pay personally” narrative may be oversimplified.
9) You want to show you acted responsibly and transparently
This is a softer point, but still real.
A CVL is a recognised, structured insolvency route. Some directors feel it demonstrates they are not trying to duck creditors, hide, or disappear.
That can matter when you’re trying to protect your reputation, your future employability, your ability to trade again, or simply your sense of doing the right thing.
10) You need a clean break so you can move on
Sometimes the value is emotional and practical.
The phone stops ringing. The letters get handled. The “unknown” becomes a process with milestones.
That has genuine worth, even if the company has no assets.
A challenge for you: which of these triggers apply?
Be honest. Grab a pen and tick the ones that genuinely apply:
- Do I have employees who need RPS support?
- Is there a property lease or major contract that needs formal closure?
- Is a creditor petition looming?
- Am I trying to avoid the Official Receiver route?
- Is the closure too complex for me to manage safely?
- Are there hidden assets or potential recoveries?
- Am I so stressed that I need to hand this over?
- Do I need a structured process because of regulation or risk?
- Do I need reputational protection and a clean break?
If you can tick one or more, paying for a CVL might be a rational decision.
But if you can’t tick any of them, the question becomes sharper:
Why am I being advised to spend personal money on a process I don’t actually need?
And that leads to a second, even more uncomfortable question:
Am I receiving proper advice, or am I being sold a service?
What are the “free” alternatives, if there are no assets?
This is where nuance matters, because “free” does not mean “no consequences”.
But in broad terms, if there are no assets and no funds, the alternatives that can arise include:
- Doing nothing and allowing creditors to take their own steps (including a potential petition).
- Company dissolution routes (in limited circumstances, but directors must be careful, because dissolving a company to avoid debts can lead to objections, restoration, and personal consequences).
- Informal closure without a formal insolvency appointment, where appropriate and handled responsibly.
The right route depends on facts, risk, and the director’s personal position. This is exactly why generic, pushy advice is dangerous.
“The advice from the IP doesn’t sound right.” What should you do?
Get a second opinion before you sign anything.
I’ve just written a separate blog on that exact situation: “Received advice from an IP that just doesn’t sound right?”
That blog also explains how to use VAi, my insolvency copilot, to sanity-check advice in a structured way.
VAi is helpful here because it doesn’t have a fee quote sitting behind the answer. It can help you map out:
- the pros and cons of the CVL you’ve been advised to do
- alternative routes
- what safeguards you should put in place
- how to go back to the IP with sensible, professional questions
And to get the best out of VAi, use CIT:
- Context: give the full story
- Interview: ask VAi to question you first
- Task: ask it to explain the advice, alternatives, safeguards, and how to deal with the other IP
One last thing
If you’re being pressured to pay personally for a CVL, don’t let urgency replace judgement.
Sometimes paying for a CVL is the right decision. It can protect employees, deal with leases, avoid petitions, and give you a controlled closure when you’re at breaking point.
But sometimes it’s just a transaction someone wants you to make.
So ask the hard questions. Tick the triggers. Get a second opinion.
And if the advice still doesn’t add up, you already know what that means.
You’re allowed to step back. You’re allowed to challenge. You’re allowed to protect yourself.
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