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.
Insolvency vs liquidation - what's the difference?
They're routinely used interchangeably and mean different things: insolvency is a financial state - the company can't pay its debts - while liquidation is a legal process that ends a company; a company can be insolvent without ever liquidating, and (in an MVL) can liquidate without ever being insolvent.
Insolvency: the state
A company is insolvent when it fails the cash flow or balance sheet test - a diagnosis, not an outcome, and one from which companies recover through Time to Pay, restructuring, CVAs, or administration.
What insolvency does change immediately is directors' duties - creditors' interests come first from that point, as our company insolvency guide explains.
Liquidation: the process
Liquidation is the formal ending - voluntary or compulsory, insolvent or solvent - run by a licensed practitioner, concluding in dissolution.
Why the distinction matters
Because the space between the two is where the decisions live: an insolvent company's directors choose (or forfeit) the route - and the quality of that interval, measured in advice taken and exposure contained, determines both the creditors' outcome and the directors' own.
If your company is insolvent, liquidation is one option among several - here's the full map.
Call our licensed insolvency practitioners in Manchester on 0333 023 5090 - free, confidential, and directly with an ICAEW-licensed IP.
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This page is intended for general information purposes only and does not constitute financial, legal, or professional advice. Always take advice from a licensed insolvency practitioner about your specific position.