A guide, not advice. This explains how things generally work. A licensed insolvency practitioner will tell you what applies to your company or to you.
What is company liquidation?
Company liquidation is the formal process of bringing a limited company to an end - its assets are sold, its creditors are paid so far as funds allow, and the company is removed from the register at Companies House.
In this guide you'll learn about the three types of liquidation, how to tell which applies to your situation, and what the process means for directors, employees, and creditors.
Liquidation is a legal process with lasting consequences, so it's a good idea to take advice from a licensed insolvency practitioner before deciding how to proceed.
What are the three types of liquidation?
All liquidations end with the company closing, but they begin in very different circumstances.
Creditors' Voluntary Liquidation (CVL)
A CVL is chosen by the directors and shareholders of an insolvent company - one that can't pay its debts.
It's the most common form of liquidation, and choosing it voluntarily gives directors more control than waiting for creditors to act.
Members' Voluntary Liquidation (MVL)
An MVL is for solvent companies - the company can pay everything it owes, and the process exists to distribute the remaining funds to shareholders tax-efficiently.
Despite the similar name, an MVL is a planning tool rather than a distress procedure.
Compulsory liquidation
Compulsory liquidation is forced on a company by court order, almost always after a creditor - very often HMRC - petitions to wind the company up over an unpaid debt of £750 or more.
The Official Receiver initially takes control, directors lose any say in the timing or conduct of the process, and the scrutiny of directors' conduct is generally at its most intense.
How do I know which type applies to my company?
Two questions decide it.
Can the company pay all of its debts in full, within 12 months, including the costs of closing? If yes, the company is solvent and an MVL (or, for small balances, strike off) is the route.
If not, the company is insolvent - and the choice is between acting voluntarily through a CVL or waiting until a creditor forces compulsory liquidation.
Acting voluntarily is almost always the better course: it demonstrates responsible conduct, allows employees' claims to be handled in an orderly way, and lets directors deal with a liquidator of the company's choosing rather than the Official Receiver.
What is the liquidation process?
While details vary by type, the shape is consistent.
A licensed insolvency practitioner is appointed as liquidator, and directors' powers cease.
The liquidator secures and sells the company's assets, agrees the claims of creditors, and investigates the conduct of the company's affairs.
Funds are distributed in the statutory order - broadly: the costs of the process, secured creditors with fixed charges, preferential creditors including employees and certain HMRC debts, floating charge holders, unsecured creditors, and finally shareholders.
The liquidator files final accounts and the company is dissolved.
What does liquidation mean for directors?
Directors must cooperate with the liquidator, hand over records, and answer enquiries about how the company was run.
In insolvent liquidations, the liquidator reviews transactions before the insolvency and reports on directors' conduct - our guides on what happens to a director during liquidation and personal liability for company debts explain what that involves and where personal exposure can arise.
Most directors of failed companies go on to run other businesses lawfully - liquidation itself is not a ban, though restrictions apply to reusing the company's name.
What does liquidation cost and how long does it take?
Entering liquidation typically takes two to three weeks in a voluntary process, with the full case usually concluding within six to twelve months - see how long liquidation takes.
Costs depend on the case; our guides on the cost of liquidating a company and insolvency practitioner fees set out what to expect and how fees are approved.
What are the alternatives to liquidation?
Liquidation is final, so it's worth confirming nothing better is available.
Administration can rescue a viable business or sell it as a going concern.
A Company Voluntary Arrangement can restructure debts where the underlying trade is sound.
Informal routes - HMRC Time to Pay arrangements, cost restructuring, refinancing - may resolve a temporary squeeze without any formal process.
A licensed insolvency practitioner is required to consider these alternatives with you before recommending liquidation.
Where can I get advice on liquidating my company?
Speak to a licensed insolvency practitioner in Manchester today on 0333 023 5090. Our ICAEW-licensed IPs handle liquidation enquiries across Greater Manchester directly - a confidential conversation with no obligation.
InsolvencySupport.co.uk is operated by Xeinadin Corporate Recovery Limited (company no. 11415156), 100 Barbirolli Square, Manchester M2 3BD. Our insolvency practitioners are licensed and regulated by the ICAEW.
This article is intended for general information purposes only and does not constitute financial, legal, or professional advice. Every company's situation is different - you should always take advice from a licensed insolvency practitioner before acting.