Liquidation is a commonly used term in business law, as we explain below in our comprehensive guide.

We cover the meaning, the types, process, timeframes and potential costs.

Liquidation: Definition

Liquidation refers to the formal insolvency procedure, in which a company is brought to a close by an appointed licensed insolvency practitioner (Liquidator or IP).

The company’s assets are then sold (liquidated) and any realisation of revenue is redistributed in order of priority amongst the creditors.

The liquidator then strikes the company off the registrar (this is known as dissolution), the final stage of the liquidation process in the UK.

This article will aim to give you all the information you need to understand the processes involved.

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Liquidation: When should you think about closing a limited company?

Entering Liquidation

If you’re a company director who wishes to shut down their business (also called winding up), or is being forced into that situation by creditor pressure, then you’ll need to understand your options.

Entering company liquidation means your company will cease to trade, your staff will be laid off, and the company itself will cease to exist as a legal entity.

As a director, your powers will cease, and you’ll no longer be able to access business bank accounts.

In the case of insolvency, a licensed insolvency practitioner will organise the liquidation of assets, and the proceeds are then distributed to the company’s creditors to repay debts.

Finally, the company will be struck off the register at Companies House.


The liquidation of a company can be done in three different ways.

There are two voluntary liquidation procedures and one compulsory liquidation procedure.

All require the assistance of a liquidator.

The voluntary liquidation procedures, Creditors Voluntary Liquidation (CVL) and Members’ Voluntary Liquidation (MVL) are initiated by the shareholders and directors.

The compulsory procedure is usually initiated by creditors like HMRC via a court order, when a company cannot pay its debts.

There is more information on all three types below.

Voluntary Liquidation

A Creditors’ Voluntary Liquidation (CVL) used by insolvent companies and is initiated by a shareholders’ resolution.

This involves the dissolution of the insolvent company and the redistribution of any assets to the creditors. This procedure enables directors to write off unsecured business debts that are not personally guaranteed.

Directors may see insolvent liquidation as a welcome and safe exit from a stressful situation; whilst addressing all of the creditors, appropriately.

If the company has liabilities that it cannot afford to pay and you would like to move on without the stress of the company’s debts hanging over your head, this type of process may be an appropriate option.

Although it should be seen as a last resort, liquidating a business that cannot pay its via this route can be considered a rational decision and it may not necessarily mean the end of business.

Liquidating a Solvent Company

A Member’s Voluntary Liquidation’ (MVL) is the appropriate way to liquidate a solvent UK company and can be used as part of an exit strategy.

A solvent liquidation may be considered if you have a company that you want to close as part of your business plan and reduce taxation. MVL’s allow you to pay less capital gains tax (at 10% on all qualifying assets)

Your company may have outlived its purpose and be heading towards a natural end of trading, or you may wish to extract the value of cash and assets from the company in a tax efficient manner.

For an MVL, the directors must sign a declaration stating that there are no remaining creditors. One example of a creditor could be tax arrears with HMRC for VAT or PAYE, so this need to be considered before going into liquidation.

The IP’s will realise business assets at fair value, before dissolving it.

Compulsory Liquidation

Compulsory liquidations are usually initiated by a creditor that is looking to force a business that cannot pay its debts into closure via a court order application due to non payment of debt.

The compulsory process is usually instigated with a winding up petition (the Insolvency Act 1986 and the Insolvency (England and Wales) Rules 2016 (SI 2016/1024). Once it is heard at court, it can become a winding up order.

This procedure is often used to wind up your business as a last resort by disgruntled creditors after failed negotiations over missed payments.

This insolvency procedure is usually handled by the Official Receiver or appointed liquidator. Therefore, this is not a voluntary process for directors.

The conduct of the directors is reported back to the UK Secretary of State at the end of the liquidation proceedings and failure to cooperate with the Official Receiver can have serious repercussions.

If you cannot pay the creditor and do not act immediately the situation can escalate quickly. Do not ignore any threat in the form of a winding up petition, as the intention is to forcefully liquidate your company.

If you have received any notice or threat to wind up your company, please speak with one of our experts immediately. Putting your head in the sand at this stage for any period of time limits the options available to us to help you.


The details of the process when voluntarily liquidating a business depend largely on the process that is chosen.

However, the five basic steps below are included within all of the procedures:

  1. An Insolvency Practitioner is appointed as Liquidator.
  2. Directors powers cease and the IP takes over managing the company’s affairs.
  3. The company’s assets are then assessed and realised (liquidated).
  4. If there are any creditors they are then paid in order of priority.
  5. Surplus cash is distributed to the shareholders.
  6. The company is finally dissolved and struck-off the registrar of companies (Companies House).
Liquidation: What are the merits involved and when it's appropriate.


There is no set time-frame to liquidate a company and with several variables dependent on each case, it is challenging to give an accurate time-frame without sufficient information.

However, once engaged, the liquidators will act immediately and the business can be placed into liquidation within a two-to-three week period if sufficient information is provided, promptly.

The liquidator will remain in office until all of their responsibilities have been addressed. They are there to support the creditors in getting the best possible return on their debt.

How Long Does a Creditors’ Voluntary Liquidation (CVL) Take?

Once the decision is taken to liquidate, the time-frame can be fairly rapid, with the business in liquidation within around 14 days. There is a minimum statutory notice period for creditors of 7 days so, assuming 90% percent of shareholders agreed to the short notice, it could potentially happen in as little as 7 days.

Timeline for Compulsory Liquidation

The preceding stages follow these time-frames:

  • Statutory Demand – If you’ve been sent one of these by a creditor, you have 21 days to pay it, or 18 days to set it aside.
  • Application for a Winding up Petition Hearing – After the 21 day statutory demand, the creditor now has the right to apply for a Winding up Petition hearing. These can take up to 2 weeks, depending on how busy the court is.
  • Winding up Hearing – There is a legal requirement to give a business 14 days written notice of a winding up hearing.

Can I Liquidate a Company Myself?

The short answer is no.

All company liquidations requires the services of a liquidator within the UK.

Striking off a business with debt is against the law and not a way to evade debts.

The laws on this are intended to ensure a fair process. Using an IP ensures that the company’s assets are valued correctly, and creditors are treated equitably. It is also intended to examine whether directors have acted responsibly or engaged in wrongful trading.

Many directors, rightly concerned about costs in an already stressful situation, fear they will not be able to pay for the process. Fortunately, almost all liquidations can be paid for via the realisation of company assets.

Directors should also be aware they may be eligible for directors redundancy payments .

Do contact one of our team for a confidential discussion on how your company liquidation might be funded if this is an area of concern.

The Role of a Liquidator

An appointed and licensed Liquidator (IP) is required for liquidation and they have several duties in their position.

These are experienced professionals have the responsibility to act as an impartial, third-party to oversee the process from beginning to end, after their appointment.

The role of a liquidator encompasses various responsibilities which include, but are not limited to:

  • Creating a Statement of Affairs document for the creditors, with the assistance of directors. This is a financial statement explaining the business’s position in some detail
  • Distributing the realised assets and surplus funds to the appropriate parties
  • Determine any outstanding claims against the business and satisfy those claims in order of priority that is set by law

What Happens to Directors?

The most important thing for directors to realise when liquidating a company is that their responsibilities undergo a marked shift if the business becomes insolvent.

Once insolvent, the company’s directors must prove they have acted in the best interests of the creditors. To avoid the risk of personal liability, it is important that directors act responsibly and take professional advice, immediately.

Directors should be aware of the fact that once an Insolvency Practitioner is appointed, they will have a responsibility to investigate the actions of company directors during the period preceding the liquidation.

Principally, the liquidator looks for clarification that, as soon as the director became aware of the situation he/she put the interests of creditors first. Where this is not the case, the director becomes open to charges of wrongful or fraudulent trading .

In cases where this can be proven, the director may become personally liable for some or all of the company debts .

Difference between Winding up, Liquidation & Bankruptcy

Liquidation and ‘winding-up’ are often used in the same context. Both of these terms refer to liquidating a company; either because the business has cash-flow problems, or because there are cash and assets, such as property, that the directors and shareholders would like to extract.

Sometimes people mistakenly refer to the phrase “company bankruptcy”. Bankruptcy is only relevant to an individual, partner, or sole trader and not a limited company.

Priority of Claims

Part of the IP’s duties involves addressing the priority of claims during the process. You can read more about who gets paid and in what order , including how employees are addressed.

Briefly, the order is as follows:

  • Any secured creditor (with a legal charge over a company asset)
  • Expenses incurred by the insolvent estate
  • the insolvency practitioners
  • Preferential creditors (which include employees and now HMRC)
  • Unsecured creditors
  • Shareholders

Do Employees Get Paid?

What does insolvency mean for an employee? And do they get paid?

This is a commonly asked question which we cover in more detail here .

Employee wages, wage arrears, holiday pay and notice pay are all covered up to certain statutory limits by the Redundancy Payments Office of the Department of Trade and Industry.

Liquidating a Company with no Assets

Our advisors are regularly contacted by directors whose companies have neither assets, nor money. These directors are, understandably, concerned about whether they’ll be able to afford the liquidation process.

There are usually solutions for this. Firstly, if there are redundancy payments due, these can be used to fund the process. This makes the process possible even for directors with no working capital of any kind.

Where there is no redundancy, it may be up to the directors to fund the process personally. Do make contact with us about this, please, and we’ll be able to explain in detail the potential costs based on your exact situation.

Costs & Fees

The average liquidation of a small business in the UK costs around £4000 to £6000 + VAT.

Alternative Options for Insolvent Companies

When you are considering liquidating a company due to financial problems, take the time to compare all of the available options. There are other courses of action that may be available to companies in financial difficulty, so consider exploring these before you decide to close the business via liquidation.

You may find that options such as a Company Voluntary Arrangement (CVA) or Administration will provide a viable way for the business to carry on trading. Insolvency procedures such as CVAs and Administration can be useful ways of restructuring a private company and would also require a licensed practitioner to supervise the process, professionally.

One example of a benefit could be after an Administrator has been engaged and appointed they can apply for a moratorium to be implemented. This may give the business some breathing space and protection from further legal action taken by creditors. The business can then address its assets, liabilities and employees to help guide the limited company towards a state of recovery.

Get in touch for any more information on liquidation and how Company Debt can help. Alternatively, there is also information on the insolvency service website.

Free, Confidential Liquidation Advice
For free confidential advice on liquidating a private company and help with your current situation, please call one of our advisors on 08000 746 757 and enquire about our services. You can arrange a call back via our contact page at a convenient time, or book a 100% confidential meeting via the website.