Liquidation means the end of a limited company and its striking off the register at Companies House.
For directors, the process can be confusing and sometimes daunting.
This article will explain the process in detail, broken down into simple steps.
What’s the Insolvent Liquidation Process and Procedure?
The first step for any director of an insolvent company is to make contact with a licensed insolvency practitioner. There is no getting around this since any liquidation must legally be conducted by an IP.
The process which unfolds next will differ slightly depending on whether your company is being forced into compulsory liquidation, or if you’re choosing voluntary liquidation before that happens.
Liquidation Process in 7 Steps
- Engage a licensed insolvency practitioner, who prepares the paperwork, including the statement of affairs the directors have to make out.
- The members pass the winding-up resolution. Directors cannot pass it; what the board does is convene the meeting or circulate the written resolution.
- Notice of the resolution is advertised in the Gazette within 14 days. Expect the bank to freeze the company accounts once it is public.
- Trading stops, employees are dealt with, and the books and records go to the liquidator. Creditor correspondence can be redirected to them.
- The creditors choose the liquidator through a decision procedure — normally deemed consent or a virtual meeting. The physical creditors’ meeting was abolished by the Insolvency (England and Wales) Rules 2016. Creditors can still requisition a physical meeting if enough of them ask, and they can put questions either way.
- The liquidator realises the assets and distributes the proceeds in the statutory order of priority. A straightforward case takes roughly twelve months; investigations, asset sales or claims make it longer.
- When the liquidator has finished, they send a final account to creditors and file it, and the company is dissolved about three months later. In an insolvent liquidation creditors are rarely paid in full, and the shortfall is not recoverable from the company once it has gone.
Can I Start a new Company After Liquidation?
Assuming no directorial misconduct has led to a directorship ban, you are perfectly entitled to start a new company.
If it is in the same field, section 216 of the Insolvency Act 1986 applies. For five years after an insolvent liquidation you cannot be involved in a company or business using the old company’s name, or a name so similar as to suggest a connection, unless one of three exceptions applies — a court permission application made within seven business days of the liquidation, a purchase of the business from the office-holder with notice given to creditors and gazetted within 28 days, or an established company that has held the name for the whole of the preceding 12 months. Getting this wrong is a criminal offence and makes you personally liable for the new company’s debts under section 217.
Buying assets from the old company is permitted, and often sensible, but the price has to be a proper one supported by an independent valuation. The liquidator has to be able to defend the sale to the creditors.
A pre-pack is a different procedure and it is worth not confusing the two. It is a sale of the business negotiated before an administrator is appointed and completed immediately afterwards; it is not part of a liquidation. The point of it is to preserve value and jobs that would evaporate in a shutdown, not to provide a route to a successor company. Where the buyer is a connected person, the Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021 apply. Two limits are worth knowing. The restriction runs for the first eight weeks beginning with the day the company enters administration, and it bites on a disposal of all or a substantial part of the business or assets. Within that, the administrator cannot complete the sale without either the approval of the creditors or a qualifying report from an independent evaluator.