Liquidation ends a company. A liquidator takes control of the company, sells what it owns, pays the creditors in the order the law sets, and the company is then dissolved. In a voluntary liquidation the liquidator is a licensed insolvency practitioner. In a compulsory liquidation the Official Receiver normally becomes liquidator when the order is made, and a licensed insolvency practitioner may later take over. Once the liquidator is appointed, the directors’ powers end.
There are three routes in. Two are voluntary: the directors propose them, and the shareholders put the company into liquidation by special resolution. A creditors’ voluntary liquidation is for a company that cannot pay its debts. A members’ voluntary liquidation is for one that can, and the directors must first make a statutory declaration of solvency. The third, compulsory liquidation, is a court order, usually made on a creditor’s petition, though the company, its directors and others can also petition. Where a creditor petitions, the directors do not choose the timing. In any compulsory liquidation, they do not choose the liquidator.
That is why the order of events matters. A voluntary route is only open while the company can still start it. Once a winding-up petition is advertised, the bank will usually freeze the company’s account, and the petitioning creditor, not the board, sets the pace.
Where the company is insolvent, the liquidator must look at how it was run in the period before it failed, and report to the Insolvency Service on the conduct of everyone who was a director in the 3 years before the liquidation. In a compulsory liquidation that report comes from the Official Receiver. A solvent members’ voluntary liquidation carries no such report. The guides below set out each route, what the liquidator does once appointed, and where a director’s own exposure sits.
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The three routes into liquidation
Creditors' Voluntary Liquidation (CVL)
The route for an insolvent company whose directors decide to close it. Shareholders pass a special resolution, which needs 75% of the votes cast, and the creditors have the final say on who the liquidator is.
Compulsory Liquidation
A creditor owed more than £750 petitions the court to wind the company up. When the order is made, the Official Receiver becomes liquidator, and the directors have no say in what happens next.
Members' Voluntary Liquidation (MVL)
For solvent companies only. The directors make a statutory declaration that the company will pay its debts in full, with interest, within 12 months. Making that declaration without reasonable grounds is a criminal offence.
Solvent vs Insolvent Liquidation
The route turns on one question: can the company pay everything it owes? The answer decides who controls the process and who the liquidator answers to.
Once a liquidator is appointed
The Liquidation Process, Step by Step
The sequence from the decision to liquidate through to dissolution, which follows three months after the liquidator’s final account is registered at Companies House.
What the Liquidator Does
Collects in and sells the assets, agrees creditors’ claims, pays dividends in the statutory order, and investigates how the company was run before it failed.
The Winding Up Resolution
The shareholders’ resolution that starts a voluntary liquidation. Once it is passed and a liquidator is appointed, the directors’ powers cease.
The Statement of Affairs
The directors’ own list of the company’s assets, debts and creditors. It is one of the first documents the liquidator tests against the company’s books.
Compulsory Liquidation: A Guide for Creditors, Shareholders and Directors
What a winding-up order means for each party, from the creditor who petitioned to the director whose company it was.
Where the director's exposure sits
What Happens to a Director During Liquidation
The office-holder must report on the conduct of everyone who was a director in the three years before the insolvency, within three months. This is what that report looks at.
Directors' Duties When a Company Becomes Insolvent
Once insolvency is likely, a director must act in the interests of the creditors. Decisions taken after that point are the ones a liquidator examines first.
Wrongful and Fraudulent Trading
Where a director kept trading when there was no reasonable prospect of avoiding insolvent liquidation, the court can order a personal contribution to the company’s assets.
Personal Guarantees During Liquidation
Liquidation ends the company’s liability, not the director’s. A lender holding a personal guarantee will usually call it in once the company fails.
Bounce Back Loans and Liquidation
A bounce back loan carried no personal guarantee. The liquidator will still check how the money was used and whether the application was accurate.
Cost, and the alternatives to liquidation
What Does Liquidation Cost?
What drives the fee, what the process costs, and who pays it when the company has little left to sell.
Company Liquidation: A Guide for Directors
The full guide to closing an insolvent company, from the first signs of trouble to the final account.
Dissolving a Limited Company
Strike-off costs less than liquidation, but it is not a way to walk away from debts. Creditors can object, and a dissolved company can be restored to the register.
Administration
Protects the company from creditor action while an administrator tries to rescue the business, or to get creditors a better result than an immediate liquidation would.
Company Voluntary Arrangement (CVA)
Lets the company keep trading while it repays part of its debts over time. It needs the approval of 75% by value of the creditors who vote.
