Company Liquidation Explained – A Helpful Guide

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Company Liquidation is the formal insolvency process of closing a company and dissolving it from the Companies House Register as a legal entity. To liquidate a company, a business will need to appoint a licensed Insolvency Practitioner as a liquidator. This article explains limited company liquidation and the various solutions available to you.

At Company Doctor, we have the necessary experience in guiding businesses through solvency or insolvency and can provide you with expert advice and financial guidance every step of the way.

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What Does Liquidating a Company Mean?

It is the process that your company faces if you have cash flow problems on a regular basis and creditors are threatening to take enforcement action. 

A compulsory liquidation is a form of liquidating a company which involves the courts. It happens when a winding-up petition has been issued by a creditor of an insolvent company, due to a debt not being satisfied.

Liquidation is the process of closing a limited company, selling company assets and dissolving the company from the official register. 

In the realm of business insolvency, there are three primary forms of liquidation: Compulsory Liquidation, Members Voluntary Liquidation (MVL), and Creditors’ Voluntary Liquidation (CVL). Understanding the differences between these forms of liquidation is critical for a company’s directors considering the future of their companies.

  1. Compulsory Liquidation: This form of liquidation is typically a result of a court order following a winding-up petition from a creditor. The court will appoint an official receiver to liquidate the company’s assets in order to repay the creditors. This process is usually involuntary and occurs when a company cannot pay its debts.
  2. Members Voluntary Liquidation (MVL): An MVL is a process initiated by the directors of a solvent company who wish to close it. This usually happens when the directors have decided to retire, or there is no longer a need for the company. In this process, the company’s assets are sufficient to cover all debts and liabilities, including statutory interest.
  3. Creditors’ Voluntary Liquidation (CVL): CVL is initiated when the directors of an insolvent company decide it can no longer carry on due to its inability to pay debts. The directors choose to stop trading and bring in a liquidator to wind up the company’s affairs. This process is voluntary but initiated under the acknowledgment of insolvency.

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Steps to Take Before Liquidation

Before deciding on liquidation, it’s essential for company directors to consider all options and take certain steps to ensure they’re making the best decision for their company’s future.

  1. Consult with a Licensed Insolvency Practitioner: An Insolvency Practitioner can provide professional advice on whether liquidation is the best option or if there are other viable alternatives to consider such as a Company Voluntary Arrangement (CVA) or administration.
  2. Review the Company’s Financial Situation: A thorough understanding of the company’s financial health can help determine the right course of action. This includes reviewing all debts, assets, liabilities, and income streams.
  3. Consider the Impact on Employees: It’s important to consider the effect of liquidation on employees. You should prepare to manage redundancies responsibly and understand the financial implications this may have.
  4. Legal and Contractual Obligations: Review any ongoing contracts, legal obligations or pending litigation the company might have. These can impact the liquidation process and should be discussed with your insolvency practitioner.

If your company has had strike off action suspended, it’s crucial to understand the implications. Learn more about suspended strike-off action and its impact on your company’s future.

How does liquidation Process work?

The best way to take steps towards the liquidation of a company is to enlist help from an expert Insolvency Practitioners firm who can explore your full range of financial options and recommend the best fit for you. 

When your company enters into liquidation process, there are a few main steps that are taken as part of the process of liquidating your company.

The ideal approach to get your company liquidated is to engage the aid of a professional Insolvency Professional who can evaluate all of your financial alternatives and choose the best option for you.

If the company cannot continue operating and liquidation is determined as the best alternative, a creditors’ meeting must be held one month after it shuts down. The appointment of a licensed Insolvency Practitioner will be confirmed at this session.

If you have been asked to attend a creditors’ meeting as a debtor, we strongly advise you to do so. This is when the Statement of Affairs is presented that outlines the business’s current financial status and explains how the liquidation procedure works to all creditors.

How Long Does the Liquidation Process Take?

The length of the liquidation process can depend on various factors including the size and complexity of the company, the type of liquidation, and the efficiency of the IP handling the case. Here is a general timeline:

  1. Appointing the Insolvency Practitioner: This is the first step in the process and can be completed relatively quickly. Once appointed, the IP will take over the company’s affairs and begin the process.
  2. Creditors’ Meeting: A creditors’ meeting must be held within 14 days of the liquidator’s appointment. The purpose of the meeting is to approve the liquidation process and appoint the liquidator officially.
  3. Asset Realisation: The appointed Insolvency Practitioner will then identify, value and sell the company’s assets. This process can take several weeks or even months, depending on the complexity of the company’s assets.
  4. Investigations and Distribution of Assets: The liquidator investigates the company’s affairs, which could take a few weeks to several months. After this, the liquidator distributes the assets among the creditors, which can take a few weeks.
  5. Dissolution: Finally, the company is dissolved. This usually happens about three months after the final meeting of creditors, but it can be longer.

Therefore, while the process may be initiated promptly, the entire procedure can take several months to over a year. It’s crucial to maintain open and transparent communication with your insolvency practitioner throughout the process to stay updated on the progress.

To get a comprehensive understanding of the time frame involved in the liquidation process, refer to our detailed guide on how long liquidation typically takes.

Duties of the Director During the Liquidation Process

During voluntary liquidation, company directors have to co-operate with the liquidator in terms of attending an interview with the Insolvency Practitioner as and when required to provide all company information and documentation such as books and records, details of business assets & liabilities and assist the liquidator with any other queries through the process.

Once the liquidation process ends, there is an 8-week time limit in which objections to the liquidator’s release can be made by shareholders, creditors or members.

To gain a comprehensive understanding of the fees associated with the involvement of insolvency practitioners in the liquidation process, refer to our detailed article on insolvency practitioners’ fees.

Liquidation – What Options do you Have?

Compulsory Liquidation

This process of shutting down a company is initiated by a third party and involves the courts and happens when a creditor of an insolvent company files a winding-up petition because the company has not paid what is owed.

The court hears the petition at a winding-up hearing, and if it finds merit in the case, it can issue a Winding Up Order to Compulsory Liquidate the company. This means that an appointed liquidator will oversee its shutdown.

Members Voluntary Liquidation (MVL)

This liquidation process is applicable when a company is still solvent and able to trade, yet the directors of the company wish to close the company down. In this instance, there is enough value left in the remaining assets of the company in order to pay all the debts owed out to creditors, plus statutory interest. 

In order to begin, the directors of the company must make a formal declaration of solvency that details an up to date account of all the company assets of the company and all the existing liabilities.

The directors of the company will also be required to sign a declaration confirming that they have conducted a full and thorough investigation into the affairs of the company and that the company is in a position to repay all outstanding debts within a 12-month period.

The Declaration of Insolvency is then filed at Companies House as the company enters liquidation and the shareholders of the company are required to hold a general meeting where a resolution is passed to begin the process.

Creditors’ Voluntary Liquidation (CVL)

Unlike a Compulsory Liquidation, A Creditors Voluntary Liquidation is initiated by the directors of the company and takes place when a company is insolvent and no longer has the ability to pay its liabilities or continue trading.

Directors are responsible for instructing an insolvency attorney in this instance. After that, the directors begin a decision-making process to put the firm into liquidation and entrust control to a liquidator.

A company must have a general meeting of shareholders in order to vote for a Creditors Voluntary Liquidation, during which it can resolve to wind up the company. At this point, it can choose to nominate an insolvency practitioner as liquidator.

A physical meeting or decision date should also be called on or around the same day as the shareholders’ meeting for creditors to object if they wish, or request.

Trading During the Liquidation Process

The main goal of liquidation is to dissolve the company and stop trading entirely. In most situations, businesses are not allowed to keep operating once the liquidation process starts and they are legally in liquidation.

Directors should cease trading as soon as the decision to liquidate the company has been made. If they were found to be trading insolvent, the directors can be found guilty of wrongful trading and become personally liable for the debts of the company and could also be banned from acting as a director of a company for up to a maximum of 15 years.

Once the company has been liquidated, it will no longer exist and will stop trading. The liquidator will then be required to investigate each of the directors to ensure that their actions during the insolvency met their statutory duties and obligations.

Directors often have questions about the treatment of director loan accounts during liquidation. Our article on liquidation and director loan accounts provides essential insights into this aspect.

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Understanding the Consequences of Wrongful Trading

The concept of wrongful trading is important for any director considering liquidation. It refers to a situation where directors allowed their company to continue trading when they should have known there was no reasonable prospect of avoiding insolvency.

  1. Personal Liability: Directors found guilty of wrongful trading can be made personally liable for the company’s debts. This can be a significant financial burden and could impact personal credit ratings and future business prospects.
  2. Disqualification: Directors involved in wrongful trading can be disqualified from serving as a director for up to 15 years. This ban applies not only to limited companies but also to other forms of businesses like partnerships and sole proprietorships.
  3. Criminal Charges: In severe cases, if dishonesty is involved, directors could face criminal charges, leading to fines or even imprisonment.

To avoid these serious consequences, it’s crucial that directors seek professional advice at the earliest sign of financial distress. An insolvency practitioner can provide guidance on the best course of action to take and help navigate the complex legal landscape of insolvency.

If you want to learn more about wrongful or fraudulent trading and its implications, our article on what is wrongful trading and how it may affect you provides valuable insights.

What is the Cost of Entering Liquidation?

Many individuals are understandably concerned about liquidation costs, especially those already experiencing financial hardship due to their company’s impending closure.

Liquidation fees can be costly, but it is important to keep in mind that these expenses may be covered by the business’s assets. In fact, the fee for this service is often included in the liquidation itself, which would relieve you of any additional burdens.

Liquidator Costs and Expenses

Once the assets of a company have been valued and sold, the first cost to be paid are the costs of the liquidation.

The fee for the insolvency practitioner acting in the role of liquidator is paid in full, alongside all administrative costs and expenses which generally covers the costs of holding meetings, realisation of the assets of the company, cost of contacting creditors and distributing funds, producing reports and investigations into the company books & records and actions of the company directors.

The outstanding creditors of the business are responsible for approving these costs and expenses.

To gain a comprehensive understanding of the fees associated with the involvement of insolvency practitioners in the liquidation process, refer to our detailed article on insolvency practitioners’ fees.

What are the Pros and Cons of liquidation


  • Stops any further legal action from being taken and relieves pressure from your creditors.
  • Allows time for the the assets of the company to be realised for the best possible return for creditors
  • There are no up-front costs as the liquidator draws fees raised from the sale of the company’s assets
  • Offers the chance for a fresh start for directors to move on and start afresh and for the employees of the company to make a claim for redundancy via the Insolvency Service
  • Avoid the chances of a creditor initiating a compulsory liquidation (winding up order) through the courts.


  • Once liquidation starts, any trading that is continued with the business may cause you to be prosecuted. You can also no longer trade using the same name (or a name that is noticeably similar).
  • The assets of the business are immediately removed from the ownership of the company.
  • Director’s seeking to start a new business will be required to rebuild the reputation of the business from scratch.

Next Steps in Liquidating your Company

If your company is solvent and you want to voluntarily liquidate, due to retirement for example, you can apply for a Members Voluntary Liquidation yourself and personally fill out the relevant forms.

If Company Liquidation seems to be your business’s best option, you’ll of course want to get the process started quickly to avoid further financial deterioration. In any case, it is imperative that you contact a professional insolvency expert immediately. 

If your company is insolvent, you’ll need the help of an authorised insolvency practitioner of an official body to deal with the process who will be appointed to handle the Creditors Voluntary liquidation.

In terms of Compulsory Liquidation, the Courts will be involved and a liquidator will be appointed by the Insolvency Service if there are realisable assets involved.

Contact us for Guidance

At Company Doctor, we are eager to assist businesses and individuals across England and Wales in finishing their company liquidation in the most effective way possible. We’d be delighted to talk with you about how we can help you liquidate your company. Leave an enquiry on our website or contact us on 0800 169 1536.


The primary sources for this article are listed below.

Liquidate your limited company: Overview – GOV.UK (

Closing a limited company – GOV.UK (

Details of our standards for producing accurate, unbiased content can be found in our editorial policy here.

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