Whether you’re a director or shareholder, here are the answers to your top questions about putting a company into liquidation.

What Does it Mean to Liquidate a Company?

Liquidation refers to the process of closing a limited company by converting its assets into cash, repaying creditors in order of priority and then dissolving the company from the register at Companies House[1]Trusted Source – GOV.UK – Strike off your limited company from the Companies Register. Any money left goes to shareholders.

It can be a voluntary process for either a solvent or insolvent company or compulsory, following a court order subsequent to a winding up petition.

At Company Debt, we offer expert guidance and financial advice to help your business, whether insolvent or solvent, through liquidation.

Company-Liquidation

How do I Liquidate my Limited Company?

If you’re a director, initiating a director is a simple process but it must be done correctly. Begin the liquidation by holding a board meeting and passing a resolution to wind up the company. Shareholders can also begin the process via a special resolution, as long as this is backed by a 75% majority of the eligible members.

Following this, you must appoint a licensed insolvency practitioner (IP) such as ourselves; this is a legal requirement to ensure fair play.

The IP will take over all creditor communications, deal with staff, suppliers, HMRC, and all other formal aspects of closing the company. Assets will be sold to pay creditors, and any debts not covered will be formally written off with the company’s dissolution.

For most directors, the appointment of an IP comes as a profound relief because it means you can take a back seat while the process unfolds[2]Trusted Source – GOV.UK – Directors’ Responsibilities in Liquidation. As your role in managing the company ends, your main responsibility as director will shift to supporting the IP with information.

If your company is insolvent, a CVL (creditors voluntary liquidation) is the standard means of voluntarily liquidating.

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

>>Read our full article on What Happens to Directors in Liquidation?

For a solvent company, a process known as Members Voluntary Liquidation offers the most tax-effective option for closure when there are assets of £25k or more.

MVL’s allow you to pay less capital gains tax (at 10% on all qualifying assets)

For companies with less than £25k in retained assets, it may be cheaper for you to sell any assets yourself and strike the company off the register at Companies House. You should ask your accountant or another professional advisor for advice about this.

Quick Quote for Closing a Company

What is the Process for Liquidating a Limited Company?

The basic process of liquidation involves the IP selling the company’s assets in a fair and organised manner to pay creditors as much as possible.

As part of their remit, the liquidator will also investigate the directors’ conduct in the period preceding insolvency to see if any actions reduced creditors’ returns.

When all claims are settled, the liquidator distributes any remaining funds to shareholders and ensures the company is formally dissolved and struck off the company’s register.

Does Liquidation Write off Company Debt?

One of the main concerns directors have with an insolvent company is whether they can leave the debt behind.

Typically, any company debts that the liquidator cannot repay are written off, with exceptions for debts covered by personal guarantees and liabilities arising from wrongful or fraudulent trading.

When the company closes, the debts end with it.

Read our full article here on When Can Directors be Held Personally Liable for Debts?

Quick Quote for Closing a Company

What are Employee Rights During Company Liquidation?

During a company liquidation, employees have certain priority rights and protections[3]Trusted Source – GOV.UK – Employees’ Rights During Liquidation. Their unpaid wages, salaries, commissions, and other compensation are given priority over most other unsecured claims, up to a statutory limit. Additionally, unpaid contributions to pension and benefit plans must be addressed.

Read our full article on What Happens to Employees During Liquidation

How Long Does the Liquidation Process Take?

The complete liquidation process can take around one year on average but longer when a larger company is involved.

What Happens After I Have Wound Up My Limited Company?

After your company has been liquidated, here’s what happens next for you:

  • The company’s debts cease – You shouldn’t face personal repercussions provided there were no wrongful or fraudulent trading or personal guarantees.
  • You’re now in a position to start anew. Depending on your personal circumstances, this could mean setting up a new business or taking up employment.
  • Even after the company is dissolved, you may still need to fulfil some reporting or compliance requirements after it is liquidated.

Are There Risks With Company Liquidation?

Liquidating a company comes with several downsides that can have lasting impacts:

  1. Some assets may not reach their full sale value – In a forced liquidation, assets often have to be sold quickly, resulting in lower sale prices than what the assets are truly worth
  2. Directors’ Liability – If directors have personally guaranteed any of the company’s debts, those could fall on them to pay back once the company is liquidated.
  3. Lower Recoveries -There’s a chance, not everyone the company owes money to will be paid back in full. After paying secured creditors, liquidation costs, and priority claims, unsecured creditors often recover just a fraction of their claims.
  4. Job Losses – Liquidation means your employees will be out of work.

How Company Debt Can Help with Liquidation

We know that liquidation can be complex and challenging for everyone involved. Our goal is to reduce that burden via empathetic and professional support throughout, helping you navigate this challenging period with confidence.

Our licensed insolvency practitioners (IPs) are experts in handling every aspect of the liquidation process, from initial consultations to final dissolution. We’ll ensure your liquidation process follows all legal requirements, minimising the risk of penalties or legal complications.

If you need help understanding the best way forward for your company, use the live chat during working hours, or call us on 0800 074 6757.

FAQs on Liquidating a Business

The company’s debts are paid off using the realised assets during the liquidation process. What cannot be paid ends with the dissolution of the company.

During the liquidation process, any remaining assets are distributed among the shareholders in accordance with the company’s articles of association. However, it is unlikely that shareholders will receive any returns in the case of liquidation.

Yes, directors can be held personally liable for the company’s debts in certain circumstances, such as if the was traded while insolvent or if the directors have acted fraudulently or recklessly.

Yes, it is possible to avoid liquidation by restructuring the company’s operations, seeking alternative solutions such as a company voluntary arrangement or administration, or finding a buyer for the company. It is important to seek professional advice to achieve the best outcome.

References

The primary sources for this article are listed below, including the relevant laws and Acts which provide their legal basis.

You can learn more about our standards for producing accurate, unbiased content in our editorial policy here.

  1. Trusted Source – GOV.UK – Strike off your limited company from the Companies Register
  2. Trusted Source – GOV.UK – Directors’ Responsibilities in Liquidation
  3. Trusted Source – GOV.UK – Employees’ Rights During Liquidation