Once a business is liquidated, its shares become worthless – this can be a stark reminder that whether owned on a large scale by directors or modestly by small investors, there are always risks when investing in companies.

Shareholders, therefore, become creditors and must wait to be paid, in order of priority, for the sale of corporate assets.


What Happens to a Company’s Shares During Liquidation?

As soon as a company begins the liquidation process, trading of its shares is stopped. These shares are then considered “deemed worthless,” indicating they belong to a company that no longer operates.

Shareholders can declare these worthless shares as a capital loss, potentially reducing their income tax liability. After appropriate documentation, these shares can be removed from a shareholder’s investment portfolio.

Where Do Shareholders Rank in the Payment Priority During Liquidation?

Although the primary aim of a liquidation is to pay creditors, shareholders are the lowest in terms of their priority.

Proceeds are paid to creditors in the following order:

When Will Shareholders Receive Payment During Liquidation?

Shareholders are the last to receive payment during liquidation, following the settlement of all creditors’ claims. This process can vary in duration, often extending from several months to a few years, depending on the complexity of the liquidation and the time required to sell assets and settle disputes.

FAQS on What Happens to Shareholders When a Company Is Liquidated

In the UK, shareholders are not considered creditors. They are owners of the company and stand at the end of the line in terms of payment priority. Creditors are paid first, and only if there are any remaining funds will shareholders receive anything.

Yes, in the event of a liquidation, preferred shareholders have priority over ordinary shareholders. They are more likely to receive a distribution if funds are available after paying creditors. However, their payment is still not guaranteed and depends on the remaining assets.

Stay informed about the liquidation process and its progress. You may be invited to meetings or to vote on certain resolutions. It’s also wise to consult with a financial advisor to understand the implications for your investment and explore any potential tax reliefs or losses.