Chris is an Insolvency Practitioner regulated by the ICAEW since 2014,.
He is experienced in contentious insolvency with excellent analytical skills and strong knowledge of both general and technical insolvency matters.
At the end of a liquidation, the company is struck off the official Companies Register and officially ceases to exist. Before this, the appointed liquidator concludes all of the business affairs, including the preparation and submission of the final liquidation account to Companies House.
Once this is done, the IP typically summons a meeting with creditors and shareholders to present the final outcomes, after which the company is formally dissolved.
This ‘striking off’ is the last step in the liquidation process, marking the end of the company’s journey.
Aspect
Outcome
Company Status
Struck off the Companies Register and ceases to exist
Asset Distribution
Liquidator realizes assets to repay creditors according to legal hierarchy
Shareholder Impact
Shareholders typically lose their investment, with minimal chance of distribution
Record Keeping
Liquidator must keep detailed records for a specified period (often up to 7 years)
Employee Entitlements
Wages classified as preferential creditors; entitled to redundancy pay and other compensations
Director Consequences
Free to pursue other opportunities, subject to restrictions if misconduct found
Company Revival
Not possible once liquidated and dissolved
Future Directorships
Allowed, unless disqualified due to wrongful or fraudulent activities
New Business Ventures
Permitted, but must follow rules regarding company name reuse (Section 216)
What Happens to Assets After Liquidation?
When a company enters liquidation, the appointed liquidator’s primary duty is to identify and realise the company’s assets to repay creditors. The process is carefully managed to ensure creditors are repaid according to a legally defined hierarchy, with secured creditors taking precedence over unsecured creditors.
If the sales of assets yield any surplus, these funds are then distributed to shareholders at the end of the process. Should a director wish to keep a particular asset for personal reasons, they have the option to purchase it at its market value, determined by an independent valuer.
After a company is liquidated, shareholders typically face the reality of losing their investment. Some proceeds from the sale of assets, after paying off creditors, might be distributed to shareholders, but this is uncommon. Typically, the company’s debts consume the majority of these funds, leaving little to no surplus for distribution.
Shareholders stand at the end of the repayment line, and receive any remaining funds only after all creditors have been satisfied.
How Long to Keep Company Records After Liquidation?
Even after a company has been liquidated, there are still legal requirements for maintaining records. The liquidator is responsible for keeping detailed records of the liquidation process, including the disposal of assets and repayment of creditors.
These records must be kept for a specified period, often up to seven years, to ensure transparency and accountability. This allows for any necessary review or investigation by regulatory bodies or interested parties.
Employee Wages and Redundancy After Liquidation
Employees of a liquidated company normally face redundancy. In the UK, employees (including directors who qualify as employees) are entitled to certain compensations, such as redundancy pay, owed wages, holiday pay, and notice pay. These claims are given priority over unsecured creditors but come after secured creditors and the costs of the liquidation process itself.
Unpaid Wages
In the UK, employees are classified as preferential creditors for certain types of unpaid earnings, including wages, salary, and holiday pay, up to a specified limit. This classification means they have a priority claim over the company’s assets, but only after secured creditors have been paid and before unsecured creditors.
The process for recovering unpaid wages involves submitting a claim to the liquidator, who is responsible for distributing the assets of the liquidated company. If the company’s assets are insufficient to cover these claims, employees may seek compensation through the National Insurance Fund for certain entitlements, such as redundancy pay and up to 8 weeks of unpaid wages.
Employees must act promptly in submitting their claims, as there are deadlines for accessing these entitlements.
Redundancy
In the UK, employees made redundant following liquidation are entitled to certain protections and compensations, including redundancy pay, provided they meet eligibility criteria such as length of service.
The amount of redundancy pay is based on the employee’s age, length of service, and weekly pay, up to a statutory limit. Employees are also entitled to other payments, such as arrears of wages, holiday pay, and notice pay.
Employees must file a claim with the Redundancy Payments Service (RPS), which administers payments funded by the National Insurance Fund, to claim redundancy and other entitlements.
The impact of a company’s liquidation on a director’s future possibilities can vary. Directors may face restrictions, especially if they are found responsible for wrongful or fraudulent trading leading up to the liquidation. However, assuming no misconduct, directors are free to pursue other opportunities or start new ventures.
Directors must be mindful of the rules regarding reusing company names and the potential for personal liability in cases of wrongful trading.
Can a Company Reopen After Liquidation?
Once a company has been liquidated and officially dissolved, it ceases to exist as a legal entity and cannot be reopened in its previous form. The dissolution process removes the company from the Companies Register, meaning it is no longer recognised by regulatory authorities. Any attempt to continue operations under the same company name and registration would not be legally permissible.
Can You Take Another Directorship after Liquidation?
Yes, in the United Kingdom, you can generally take on another directorship after a company has been liquidated as long as you have not been disqualified as a director. Disqualification could occur if you were found to be involved in wrongful or fraudulent activities related to the liquidated company.
If you’re not disqualified, there are no legal barriers to taking another directorship.
Can You Set up a New Business After Liquidation?
You can set up a new business as long as you obey the rules regarding ensuring the new company is legally distinct from the old one.
Reusing a name from a liquidated company is a complex matter governed by ‘Section 216’ of the Insolvency Act 1986. This rule prohibits directors of a liquidated company from using the same name, or a similar name, for another company within five years of the liquidation. There are exceptions to this rule, but they require specific legal processes, such as purchasing the name from the liquidator or seeking court permission. Failing to adhere to these rules can lead to penalties, including personal liability for company debts and potential criminal charges.
FAQs on What Happens After Liquidation
Can a Director Buy Assets from Their Own Liquidated Company?
Yes, a director can purchase assets from their own liquidated company. However, this must be done transparently and at a fair market value determined by an independent valuer to ensure fairness to all creditors.
What Happens to Company Debts After Liquidation?
After liquidation, company debts are paid as far as the proceeds from asset sales allow. Secured creditors are paid first, followed by preferential creditors like employees for their unpaid wages, and then unsecured creditors. Any debts remaining after this are typically written off, as the company no longer exists.
How Can Employees Claim Redundancy Pay After Liquidation?
Employees can claim redundancy pay and other entitlements through the Redundancy Payments Service (RPS), funded by the National Insurance Fund. Claims should be made promptly to ensure eligibility and timely payment.
Can You Start a Business in the Same Industry After Liquidation?
Yes, you can start a new business in the same industry after liquidation, provided you comply with all legal requirements, including those concerning the reuse of a similar company name. It’s crucial to assess what led to the previous company’s liquidation to avoid similar pitfalls.
