MVL or CVL: the differences

The choice is not really a choice: it depends on whether the directors can honestly swear a declaration of solvency. If they can, the winding up is a members’ voluntary liquidation, controlled by the shareholders, with creditors paid in full and the surplus returned to members. If they cannot, it is a creditors’ voluntary liquidation, where the creditors decide who the liquidator is, the directors’ conduct is reported to the Insolvency Service and shareholders usually receive nothing.

What decides whether a liquidation is an MVL or a CVL?

Section 90 of the Insolvency Act 1986 draws the line. A voluntary winding up in which the directors have made a statutory declaration of solvency under section 89 is a members’ voluntary winding up; one without that declaration is a creditors’ voluntary winding up. Both start the same way, with the shareholders passing a special resolution under section 84, which GOV.UK describes as needing 75% by value of the shares.

The declaration under section 89 must be made by the directors, or a majority if there are more than two, after a full inquiry into the company’s affairs. It states that the company will pay its debts in full, with interest at the official rate, within a period of no more than 12 months from the start of the winding up. It must be made within the 5 weeks before the resolution (or on the same day before it is passed), include a statement of assets and liabilities, and be delivered to Companies House within 15 days of the resolution.

The Insolvency Service describes an MVL as used when a company can pay its debts but the shareholders want to close it, for example on retirement. A CVL is used when the company cannot pay its debts. For background on each, see our guides to members’ voluntary liquidation and creditors’ voluntary liquidation.

Who controls the process?

In an MVL the company in general meeting appoints the liquidator (section 91), so the shareholders choose the insolvency practitioner. Creditors are paid in full and have no say in the appointment.

In a CVL the shareholders may nominate a liquidator, but the directors must seek a nomination from the creditors, and under section 100 the creditors’ choice prevails. If the nominations differ, a director, member or creditor can apply to court within 7 days. Within 7 days after the resolution the directors must also prepare a statement of affairs, verified by a statement of truth, and send it to the creditors (section 99); failing to do so without reasonable excuse is an offence.

In both, the directors’ powers cease when the liquidator is appointed, except so far as the members or liquidator (in an MVL, section 91(2)) or the liquidation committee or creditors (in a CVL, section 103) allow them to continue.

What happens if an MVL turns out to be insolvent?

It converts. Under section 95, if the liquidator forms the opinion that the company will not pay its debts in full with interest within the period in the declaration, they must within 7 days send a statement of affairs to the creditors and seek a nomination of liquidator from them. Under section 96 the winding up becomes a CVL from the day the creditors nominate a liquidator (or the procedure ends without a nomination), and the Act then applies as if the declaration had never been made.

The directors who signed the declaration also have personal exposure. Section 89(4) makes it an offence, punishable by imprisonment or a fine or both, to make the declaration without reasonable grounds for the opinion. Section 89(5) presumes, unless the contrary is shown, that the directors lacked reasonable grounds if the debts with interest are not paid or provided for within the stated period. This is why an MVL should not be started while there is a large disputed claim, an open HMRC enquiry or an unquantified liability.

How do the investigations differ?

The biggest practical difference for directors is scrutiny. Section 7A of the Company Directors Disqualification Act 1986 requires the office holder of an insolvent company to send a conduct report on every person who was a director in the three years before the insolvency date. A company counts as insolvent for this purpose if it went into liquidation when its assets were insufficient to pay its debts and the expenses of the winding up. That is the CVL case; the Insolvency Service’s CVL guidance says the liquidator will look into the reasons for the insolvency and submit a conduct report. In a genuine MVL there is no insolvency, so no conduct report is required. See our guide to director conduct reports.

The restriction on reusing the company’s name follows the same line. Section 216 of the Insolvency Act 1986 applies to directors in the 12 months before a company goes into insolvent liquidation, and GOV.UK says directors of a company in a CVL or compulsory liquidation are banned for 5 years from using the same or a similar name, subject to exceptions. It does not apply after a solvent MVL.

Who sets the liquidator’s fees, and who pays?

In both procedures the costs are paid out of the company’s assets ahead of other claims. The difference is who approves the liquidator’s remuneration. In an MVL, rule 18.19 of the Insolvency (England and Wales) Rules 2016 says the company in general meeting fixes the basis. In a CVL, rule 18.20 gives that decision to the liquidation committee or, if there is none, to the creditors by a decision procedure.

So in an MVL the shareholders are effectively agreeing the cost of their own distribution, while in a CVL the creditors, whose recovery is reduced by every pound of fees, control it. Our guide to liquidation costs gives more detail.

What do shareholders get?

Under section 107, the company’s property in a voluntary winding up goes first to pay its liabilities, subject to preferential debts, and only then to the members. Under section 189 any surplus is first used to pay interest at the official rate on the proved debts from the date of liquidation.

In an MVL that surplus is the point of the exercise. Section 1030 of the Corporation Tax Act 2010 says a distribution in respect of share capital in a winding up is not a distribution for corporation tax purposes, and shareholders are usually taxed on a capital basis, although section 396B of the Income Tax (Trading and Other Income) Act 2005 can treat it as income where, among other conditions, the shareholder carries on the same or a similar trade or activity within two years and one of the main purposes is avoiding or reducing income tax. See Business Asset Disposal Relief on an MVL. In a CVL the assets rarely cover the creditors, so shareholders usually receive nothing.

How do the two compare side by side?

Point	MVL	CVL
Solvency	Directors declare debts will be paid in full with interest within 12 months	No declaration; company cannot pay its debts
Liquidator chosen by	Shareholders (section 91)	Creditors’ nominee prevails (section 100)
Statement of affairs to creditors	Only if it converts (section 95)	Yes, within 7 days (section 99)
Fees approved by	Shareholders (rule 18.19)	Committee or creditors (rule 18.20)
Conduct report on directors	No	Yes (section 7A CDDA 1986)
Name reuse restriction	No	Yes, 5 years (section 216)
Outcome for shareholders	Surplus distributed	Usually nothing

How might this look in practice?

Illustration only. A consultancy has £150,000 in the bank, £20,000 of known creditors and a client threatening a £200,000 negligence claim. The director wants an MVL to extract the cash. Swearing the declaration would be risky: if the claim succeeds, the company cannot pay in full, the liquidator must convert to a CVL, the creditors may replace the liquidator, a conduct report follows and the director faces the section 89(5) presumption. Resolving or properly provisioning for the claim first, or accepting that a CVL is the right route, avoids that outcome.

What mistakes do directors make?

• Signing a declaration of solvency without a full inquiry, especially with tax, contractual or legal claims still open.
• Assuming the shareholders’ preferred liquidator will act in a CVL; the creditors decide.
• Making the declaration more than 5 weeks before the resolution, which makes it ineffective.
• Choosing an MVL to avoid scrutiny of a company that is in fact insolvent; conversion brings the scrutiny back.
• Using strike off instead where there are debts; see striking off a company with debts.

Company directors can protect the business against the cost of an HMRC check with tax investigation insurance, which pays up to £100,000 of accountant’s fees with Solar Protect. Read how our cover works or get a quote.

Related Accountapedia entries

• Closing a Limited Company: MVL, Strike Off and Tax
• LLP or limited partnership: the differences
• IFRS vs FRS 102: the main differences
• Annuity or drawdown: the tax differences
• Exchange differences on intra group loans

Sources

• legislation.gov.uk: Act 1986 c. 45, section 90
• legislation.gov.uk: Act 1986 c. 45, section 89
• legislation.gov.uk: Act 1986 c. 45, section 84
• GOV.UK: Print
• GOV.UK: Director information hub members voluntary liquidation mvl
• GOV.UK: Director information hub creditors voluntary liquidation cvl
• legislation.gov.uk: Act 1986 c. 45, section 91
• legislation.gov.uk: Act 1986 c. 45, section 100
• legislation.gov.uk: Act 1986 c. 45, section 99
• legislation.gov.uk: Act 1986 c. 45, section 103

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.