What Happens After Company Liquidation?

Reviewed by

Christopher Andersen

Reviewed by Christopher Andersen

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.

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23rd April 2024

What Happens at the End of a Company Liquidation?

At the end of a liquidation, the company officially ceases to exist. This phase involves the liquidator finalising all affairs, including the preparation and submission of the final liquidation account to Companies House

Once this is done, a meeting with creditors and shareholders may be held to present the final outcomes, though the specifics can vary depending on the liquidation’s context and prior agreements.

Following these steps, the company is formally dissolved. This means it is no longer a legal entity and is removed from the Companies House register. This dissolution is the final step in the liquidation process, marking the end of the company’s journey.

What Happens to Assets After Liquidation?

During the liquidation of a company, its assets are sold to generate funds. This action is undertaken because the company, at the point of liquidation, usually does not have enough liquid assets to cover its debts. 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. Additionally, should a director wish to retain a particular asset for personal reasons, they have the option to purchase it at its market value, determined by an independent valuer.

>>Read our full article on What Happens to Assets During Liquidation

What Happens to Shares After Liquidation?

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, receiving any remaining funds only after all creditors have been satisfied. This prioritisation reflects the inherent risk of equity investment, where shareholders are entitled to profits but also bear the risk of loss.

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 typically 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, including arrears of wages, holiday pay, and notice pay.

To claim redundancy and other entitlements, employees need to file a claim with the Redundancy Payments Service (RPS), which administers payments funded by the National Insurance Fund.

>>Read our full article on directors redundancy pay

What Happens to a Director After Liquidation?

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 directorship 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. Understanding these nuances and the legal landscape post-liquidation is vital for directors looking to move forward and embark on new business endeavours.

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. Consequently, 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 around ensuring the new company is legally distinct from the old.

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.

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