Christopher Andersen
Written By Chris Andersen
Director & Licensed Insolvency Practitioner
November 13th, 2023

This article is intended as a comprehensive guide to liquidation proceedings for company directors, explaining how it works, the liquidation process, and the consequences.

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What Does it Mean to ‘Liquidate a Company’?

Liquidation, also known as ‘winding up’ a company, is the process through which a company is closed, its assets sold to pay off any debts, and the remaining proceeds are divided between the shareholders.

It is attempted when business rescue is no longer an option, and the best decision is to simply close down the company.

The liquidation of a company will mean all employees lose their jobs, and the business will legally cease to exist.

What are the Types of Company Liquidation?


If a company is insolvent (i.e. cannot pay its creditors as and when payments become due or its debts outweigh its assets on the balance sheet), then it will be liquidated voluntarily (by directors who recognise that the company can go no further) using a process known as Creditors’ Voluntary Liquidation (CVl.)

If you suffer from continual cash flow problems and cannot pay your bills, this is a very strong indication that you may be insolvent.

Insolvency, however, doesn’t always mean you need to liquidate. Insolvency practitioners are adept at busines rescue processes such as administration.

The second possibility for insolvent companies is that they are forced into a compulsory liquidation procedure, by creditors.


If the company is solvent, a Members’ Voluntary Liquidation is the appropriate method for liquidating a solvent limited company with assets.

This is an efficient method of closing down a company that includes the possibility of taking advantage of Entrepreneurs Relief, which offers a lower rate of taxation.

Read our full article on MVL’s here.

What Happens to a Company When it Goes into Liquidation?

The process is as follows.

Having recognised either the possibility or the fact of insolvency, you shoud make contact with an insolvency practitioner (IP).

Once formally appointed the insolvency practitioners (IP) will advertise the liquidation in the Gazette (Official Journal of Public Record) and alert creditors as to the situation.

Formal meetings (usually virtual) take place where the IP can communicate with the creditors and answer any relevant questions.

Directors powers cease, all employees become redundant, and the IP proceeds with assessing what money exists to pay back creditors.

Once everyone has been paid, the company is struck off the register at Companies House and formally ceases to exist.

Who is Paid First in a Liquidation?

The IP will have any assets independently valued then sold, and the money will be distributed to creditors in order of priority.

The liquidator’s own fees come first, followed by:

  • Secured Creditors
  • Creditors Holding a Fixed Charge
  • Creditors with a Floating Charge
  • Preferential Creditors
  • Unesecured Creditors
  • Shareholders

What are the Options for Liquidating my Company?

There are three main options for liquidating a company:

  • Creditors’ Voluntary Liquidation (CVL): This is the most common type of liquidation, and it is used when a company is insolvent and cannot pay its debts. In a CVL, the directors of the company appoint a liquidator to oversee the liquidation process. The liquidator will then sell off the company’s assets and distribute the proceeds to its creditors, in order of priority.
  • Members’ Voluntary Liquidation (MVL): This type of liquidation is used when a company is solvent and the shareholders have decided to close the company down. In an MVL, the shareholders appoint a liquidator to oversee the liquidation process. The liquidator will then sell off the company’s assets and distribute the proceeds to the shareholders, after paying off any outstanding debts.
  • Compulsory Liquidation (Winding Up): This type of liquidation is used when a creditor of the company obtains a court order to wind the company up. This can happen if the company is unable to pay its debts, or if it is in breach of its legal obligations. In a compulsory liquidation, the court will appoint an official liquidator to oversee the liquidation process. The official liquidator will then sell off the company’s assets and distribute the proceeds to the company’s creditors, in order of priority.

The best option for liquidating your company will depend on your specific circumstances. If you are unsure which option is right for you, you should consult with a qualified insolvency practitioner.

How do I Liquidate my Company?

To liquidate your company, you will need to follow these steps:

  1. Choose the type of liquidation that is right for your company. This will depend on your company’s financial situation and the reasons for liquidation.
  2. If you are carrying out a CVL or MVL, you will need to pass a resolution to wind up the company. This can be done at a shareholders’ meeting or by a written resolution signed by all of the shareholders.
  3. If you are carrying out a compulsory liquidation, you will need to apply to the court for a winding-up order.
  4. Once the liquidation process has commenced, you will need to appoint a liquidator (if necessary). The liquidator will then take control of the company and sell off its assets.
  5. The proceeds from the sale of the company’s assets will be used to pay off the company’s debts. Any surplus funds will be distributed to the shareholders (in the case of an MVL) or to the government (in the case of a CVL or compulsory liquidation).

The liquidation process can be complex and time-consuming, so it is important to seek professional advice from a qualified insolvency practitioner.

Can I Liquidate my own Company?

While this is a commonly asked question, the simple answer is no. The law requires that liquidation be carried out by a licensed insolvency practitioner.

If you are concerned that you won’t be able to afford the costs of liquidation, do give us a call to discuss your situation and we can try to explain the best deal available to you for a cost-effective insolvency. Liquidations are usually paid for, in any case, from the realisation of assets rather than the directors own finances. There are also options to pay for it via statutory directorial redundancy payments.

Can I Start a new Company after Liquidation?

There is no law preventing directors whose companies have been liquidated from serving as a director again. The only restrictions concern the starting up of a new company with either the same or a similar name to the previous one. Section 216 of the Insolvency Act contains laws against this which we cover here.

What Does Liquidation Mean for Employees?

Insolvent liquidation will mean the end of the company, and hence all employees will lose their jobs. Employees do have a right to claim money owed to them via the insolvency practitioner overseeing the case, although whether this can be paid will depend on how much money is raised by the realisation of assets.

Should the company coffers be empty, and with no assets to liquidate, the government offers redundancy payments, wage arrears, holiday pay, and unpaid pension contributions up to certain statutory limits.

How Long does it take for a Company to Liquidate?

It usually takes up to two weeks to appoint a liquidator, after which point the directors powers cease. Actually realising the assets of the company, however, is a more protracted process and varies hugely depending on the size and complexity of the company situation. On average it takes between 6 and 24 months to complete a liquidation.

How Much Does it Cost to Liquidate?

Most liquidations can be paid for out of either the assets sold by the liquidator, or directors’ redundancy payments.

Liquidations vary considerably in cost as the insolvency practitioner usually charges on a time basis which means the larger and complex the company the more hours will be spent.

Generally speaking the liquidation of a small business would be around £4000 to £6000 + VAT.

Do I Have to pay to Liquidate my Company? What if I Can’t Afford this?

Yes, there are costs associated with liquidating a company. These costs can vary depending on the size and complexity of the company, as well as the type of liquidation that is being pursued.

The following are some of the costs that you may need to pay when liquidating your company:

  • Liquidator’s fees
  • Legal fees
  • Accounting fees
  • Advertising costs
  • Valuation costs
  • Court fees

If you are unable to afford to pay the costs of liquidating your company, there are a few options that you may have:

  • You may be able to negotiate a payment plan with the liquidator.
  • You may be able to raise funds to cover the costs of liquidation by selling off some of the company’s assets.
  • You may be able to find a liquidator who is willing to work on a contingency basis, meaning that they will only charge their fees if they are able to recover assets from the company.

What happens after I have liquidated my Company?

After you have liquidated your company, the following will happen:

  • The company will be removed from the Companies House register.
  • The company’s assets will have been sold off, and the proceeds will have been used to pay off the company’s debts.
  • Any surplus funds will have been distributed to the shareholders (in the case of an MVL) or to the government (in the case of a CVL or compulsory liquidation).
  • The company will cease to exist.

Directors will be free to start another company, or become a director of another limited company, assuming there has been no directorial ban.

Need Help or confidential advice?
Whichever route you are considering, call us today on 0208 444 2000 to discuss available options or contact us using this form. We can offer advice and immediate strategies for tackling creditor pressure.

Company Liquidation FAQs

How is a Company Liquidated?

Who Handles the Liquidation Process?

What Happens to Company Assets During Liquidation?

What are the Consequences of Liquidation for Directors?

How Long Does the Liquidation Process Take?

Is Liquidation the Same as Bankruptcy?

What Happens to Employees During Liquidation?