A Comprehensive Guide: Liquidation Process of a Company

When companies decide to cease operation, the liquidation process of a company comes into play. Learn in-depth about the process with this guide.
Liquidation Process of a Company

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Hello there, and welcome to our guide!

Are you the owner of a UK company that is in debt? Are you thinking it’s time to close and go through liquifying or selling all the assets so you can think of something entirely new?

If a company can’t pay its debts or its shareholders decide it’s time to close, they go through insolvency proceedings. Liquidation, voluntary administration, and receivership are the insolvency procedures most commonly used. Today, we will talk about the liquidation procedure.

The liquidation process of a company is like tidying up the company’s affairs before saying goodbye. Let’s journey through this process, step by step, and make it as clear as a sunny day in London!

What Exactly Is Insolvency Proceeding?

When a company or individual is in an insolvent phase, they are experiencing severe financial distress and cannot meet their obligations. And in these situations, insolvency proceedings come into the picture.

Insolvency proceedings are legal steps to handle a company’s debt. There are a few corporate insolvency procedures. Among those, the three most common are:

  • Liquidation: The liquidation process of a company is the most common insolvency procedure in the UK. It means winding up a company and selling its assets to pay its debts.

  • Voluntary Administration: Voluntary administration is a formal insolvency procedure in which an external expert is appointed as the company’s administrator to resolve its financial and operational problems. Once the directors have determined that the company is already insolvent or likely to become so, they will typically name the voluntary administrator or a secured creditor with a charge over most of its assets.

  • Receivership: Receivership is initiated when a company has borrowed money and has failed to repay the debt. In this case, the lender (secured creditor) can appoint a receiver to take control of the company’s assets and sell them to recover the debt owed to the lender. The receiver’s primary duty is to maximize the recovery for the secured creditor.

What Is Liquidation?

In the corporate world, liquidation is the process of closing down a business and giving its assets to people with claims. It usually happens when a company is insolvent, which means it cannot pay its bills when they are due.

When a company stops doing business, the remaining assets are used to pay off creditors and shareholders in order of how much they are owed. Liquidation is usually a terminal process where the company cannot continue trading.

The term liquidation may also refer to selling poor-performing goods at a price lower than the cost to the business or a price lower than the business desires. If a company goes into liquidation, it will cease operations immediately, and a Licensed Insolvency Practitioner—also known as a liquidator—will be appointed to manage its affairs.

Types of Company Liquidation

Depending on its specific situation, a business may employ various liquidation techniques. The type of company liquidation chosen or required depends on the company’s financial circumstances and the decisions made by its directors, shareholders, or creditors.

Among the most common are:

Orderly Liquidation

Orderly liquidation is the process of closing down a company in a planned and efficient way that maximizes the value of its assets for the benefit of its creditors and shareholders. It is usually used when a company cannot pay its bills and keeps running, but it can also be used when a company is a solvent but the owners want to close it down.

The purpose of an orderly liquidation is to avoid a sudden flood of assets into the market, which could depress prices and lead to a lower recovery. It is usually used when the company is not in immediate financial trouble but has decided to shut down.

Forced Liquidation

Forced selling, also known as forced liquidation, is the involuntary sale of a company’s assets to pay off its debts, typically against the will of the company’s owners or directors.

This process creates liquidity in an uncontrollable or unforeseen situation. The forced sale of this liquidation usually results from an economic event, a change in one’s personal life, a company regulation, or a legal order. Creditors can initiate forced liquidation through the court or a government agency.

Voluntary Liquidation Process

Voluntary liquidation occurs when company directors and shareholders (or members) decide to close a limited company. Everything of value in the company will be “liquidated,” which means it will be converted into money. Then, that money is used to pay off the company’s debts, with any remaining funds going to the business owners.

Voluntary liquidation usually happens after the company has faced financial problems, went through voluntary administration, or had a Company Voluntary Arrangement (CVA) terminated.

If a company does not have enough money to pay everyone it owes, this is called “insolvent.” If a company can pay off all its debts, it will be referred to as a solvent. The voluntary liquidation steps for a solvent and insolvent company are different.

Except in cases where company funds have been improperly used, or a director has agreed to personally guarantee payment of company debt, a director’s personal funds are not required to settle the company’s debts.

Two types of voluntary liquidation are available:

Creditors Voluntary Liquidation (CVL)

A CVL, or Creditors’ Voluntary Liquidation, is a process in which any remaining company assets are sold, and the proceeds are distributed to the company’s creditors. It begins with a shareholder resolution. The benefit of Creditor’s Voluntary Liquidation of an insolvent company is that you will be relieved of creditor pressure and can walk away debt-free.

A CVL entails the liquidation of the insolvent company and the redistribution of any available assets to creditors. Through this process, directors can discharge unsecured, non-personally guaranteed business debts.

Directors may view insolvent liquidation as a credible way out of financial difficulties while dealing professionally and appropriately with all creditors. An Insolvency Practitioner will be appointed to act as a liquidator here.

Note: 75% (by value) of the shareholders must consent for a CVL to be entered into.

Members’ Voluntary Liquidation (MVL)

The most tax-effective method of winding up a solvent business is through a Members’ Voluntary Liquidation or MVL. This kind of liquidation should not be confused with company voluntary strike-off, another method of closing a business that is only appropriate under certain conditions. An MVL will unquestionably be the best option for closing a solvent business if your company has assets or has a complicated and intricate structure with multiple directors or subsidiaries.

What Are the Three Stages of Voluntary Liquidation?

Three meetings and stages must be completed before voluntary liquidation can begin. You can complete this in the quickest timeframe of eight days. However, the average time is two to three weeks.

The three stages are as follows:

  • Stage 1: The first stage occurs when the majority of the boards of directors agree that liquidation is the best option. To resolve this, the board of directors can convene a meeting with little notice. Every director should receive an invitation to the meeting and a description of its objectives.

  • Stage 2: The second step is giving shareholders 14 days’ notice of a meeting to vote on a resolution to liquidate the company. This notice period can be shortened immediately if 90% of shareholders agree to a shorter notice period.

  • Stage 3: The third stage is to give creditors at least seven days’ notice of the liquidation decision. The creditors’ decision can be obtained through deemed consent (i.e., without any creditor’s meeting) or a virtual meeting. A physical creditors meeting is not held unless 10% of creditors request it. This 10% rule means one of two things:
  • 10% of creditors in terms of total value or
  • 10% of the total number of creditors or
  • A minimum of 10 creditors

Once the deemed consent date has passed, the company is liquidated. If there were a creditor’s meeting, a count would have been taken of creditors voting to pass the liquidation resolution and agreeing to whom is the liquidator.

Compulsory Liquidation Process

When a company is out of money, someone can start the compulsory liquidation process by petitioning the court to close it down. Unpaid creditors owed more than £5,000 can file a winding-up petition for this liquidation. You can fight this winding-up petition if you have a legitimate dispute or counterclaim.

Reasons for this include:

  • A company resolution
  • The company is unable to pay its creditors when their bills are due.
  • The closure of the company is both just and equitable.

The inability to pay debts can be demonstrated by failing to respond to a statutory demand or proving that the value of the company’s assets is less than its liabilities.

The company’s members or directors can initiate compulsory liquidation, usually when a creditor owes the company at least £750 and files a winding-up petition. However, unless the debt owed is significantly higher than £750, most creditors would not want to bear the costs of a compulsory liquidation.

How Long Does Compulsory Liquidation Take?

There is no legal time limit for the liquidation of a company. The time frame can vary depending on your company’s situation and the type of liquidation you are attempting. After the initial threat, completing the end-of-court procedures in a compulsory liquidation may take three months or more.

But it’s important to remember: Due to various factors, such as approving liquidation, appointing a liquidator, selling company assets, and settling creditors’ claims, liquidation procedures can take three months to a year.

Reasons for Liquidation of a Company

A company’s liquidation process can occur for various reasons. Creditors could submit petitions. Shareholders or directors could decide not to continue.

Now, if your company is solvent—able to pay its debts—and one of the following circumstances exists, you may choose members’ voluntary liquidation:

  • You want to stop working and retire.
  • Your family business has no one else who wants to run it after you leave.
  • You don’t want to run the company anymore.
  • Your company is showing poor performance

The Other Common Reasons for a Company’s Liquidation

  • Insolvency: This is the most common reason for liquidation. It means the company cannot pay its debts as they fall due. Several factors, such as poor sales, high costs, or bad management, can cause this.

  • Closure: Sometimes, a company may decide to close down even if it is solvent. This may be because the owners want to retire or the company is no longer profitable.

  • Fraud: If a company is found to have engaged in fraud, it may be liquidated. This is to protect creditors and shareholders from further losses.

  • Court Order: Sometimes, a court may order a company to liquidate. This may happen if the company has broken the law or if it is in the public interest.

  • Changing Ownership: If someone buys a business, the new owner may decide to shut it down and combine it with another business they already have.

  • Change in Industry: If the industry in which a company operates changes significantly, the company may no longer be able to compete and may need to liquidate.

  • Technological Obsolescence: If a company’s products or services become obsolete due to new technology, the company may need to liquidate.

  • Natural Disaster: A company may need to liquidate if a natural disaster damages or destroys its premises.

Objectives of Liquidation

The purposes of liquidation are:

Paying off the Company’s Debts

Paying off the company’s debts is the primary objective of liquidation. The liquidator will sell the company’s assets and use the proceeds to pay off the company’s creditors in order of priority.

Protect the Rights of All Stakeholders

Another purpose of liquidation is to protect the rights of all company stakeholders. This includes creditors, shareholders, and employees. The liquidator will ensure that all stakeholders are treated fairly and their rights are protected.

Wind up the Company’s Affairs in Orderly and Efficient Manners

An essential liquidation objective is to wind up the company’s affairs in an orderly and efficient manner. It includes closing the company’s operations, disposing of its assets, and distributing any remaining proceeds to shareholders.

To Make the Company Solvent

Another essential purpose of a liquidation is to ensure that a company is wound down equitably and fairly and that its debts are paid when due.

Fresh Start

For business owners, liquidation allows them to move on from a financially troubled company and potentially start anew with a clean slate, free from the burden of outstanding debts and obligations.

Asset Distribution

Liquidation ensures the fair distribution of a company’s assets among its creditors and shareholders. The process follows a specific hierarchy, prioritizing secured creditors over unsecured creditors.


Liquidation provides a formal and legal means of closing down a company that is no longer financially viable or sustainable. It marks the end of the company’s operations.

Liquidation Rules

The Insolvency Act of 1986 and the Companies Act of 2006 set out company liquidation rules in the UK. These rules outline the procedures and legal requirements for various types of company liquidations.

Here are some fundamental company liquidation rules in the UK:

Types of Liquidation

There are primarily two types of liquidation in the UK:

  1. Compulsory Liquidation
  2. Voluntary Liquidation
  • A court order initiates compulsory liquidation, typically due to a creditor’s demands.
  • Voluntary liquidation can be divided into members’ voluntary liquidation (MVL) for solvent companies and creditors’ voluntary liquidation (CVL) for insolvent companies.

Appointment of a Liquidator

  • In a voluntary liquidation, shareholders or creditors appoint a licensed insolvency practitioner as the liquidator.
  • In compulsory liquidation, the court appoints the Official Receiver or an insolvency practitioner as the liquidator.

Asset Realization

  • The liquidator’s primary duty is to realize the company’s assets, which involves selling them to generate funds for creditors.
  • Assets may be sold individually or as a going concern, depending on what maximizes creditor returns.

Creditor Hierarchy:

  • Liquidation follows a specific hierarchy for repaying creditors. Secured creditors (with specific claims on assets) are paid first, followed by preferential creditors (e.g., employees’ claims), and then unsecured creditors.
  • Shareholders are paid last and usually only receive distributions if remaining funds exist.

Employee Rights

  • Employees have certain rights and protections during liquidation, including claims for unpaid wages, holiday pay, and redundancy pay.
  • The Redundancy Payments Service (RPS) may pay employees if the company cannot.

Creditors’ Meeting

Liquidators must hold a creditors’ meeting to inform creditors of the progress of the liquidation and seek their approval for specific actions.

Director’s Responsibilities

  • Directors are required to cooperate with the liquidator, provide company records, and assist in realizing assets.
  • Directors can face personal liability if they are found to have acted wrongfully or engaged in fraudulent trading.

Dissolution and Closure

  • At the end of the liquidation process, the company is formally dissolved and removed from the register of companies.

Reporting and Documentation

  • Liquidators are required to prepare reports on directors’ conduct and the liquidation’s progress.
  • Various documents must be filed with Companies House and other relevant authorities.

It’s essential to note that the specific rules and procedures may vary depending on the type of liquidation (Compulsory, MVL, or CVL) and the company’s circumstances. Seeking professional advice from an insolvency practitioner is often advisable to navigate the complexities of liquidation in compliance with UK laws and regulations.

Company Liquidation Costs

The cost of the liquidation process for a company depends on its type and the situation. Take a look below to learn about those:

Voluntary Liquidation Cost

The cost of voluntary liquidation will depend on various things, like:

  • The appointed liquidator (hourly rate, experience, etc., will be the determining factors here)
  • The size and complexity of the company
  • The number of creditors
  • The nature of the company’s asset

Compulsory Liquidation Cost

Compulsory liquidation is a costly procedure. Various expenses, such as the following, are included here:

  • The current petition submission fee is £2,600.
  • The court hearing fee is £280.
  • A creditor must pay a deposit of £1,600 to the Official Receiver, intended to cover the Official Receiver’s costs and expenses immediately following the company’s winding up.
  • A statutory demand, often the first step in the winding-up process, should also be personally served on the company at its registered office. This will result in processing server fees and a fee for advertising the winding-up petition in The Gazette.

Due to the cost of a winding-up petition, most creditors will not consider it unless the debt owed is for a sizeable sum of money. However, creditors and their advisors must decide that for each case.

Who Is a Liquidator?

A liquidator is a person who has the legal authority to sell a company’s assets before the company closes to raise money for a variety of uses, including debt repayment. They are a licensed insolvency practitioner or official receiver in a liquidation process.

Duties of Liquidator

The liquidator will take control of company management as soon as they are appointed. The obligations of a liquidator in the United Kingdom, whether in a voluntary liquidation or a compulsory liquidation, are governed by several laws and regulations. A liquidator’s primary responsibility is supervising the winding up of a company’s affairs, distributing its assets, and guaranteeing legal compliance.

Take a look below to learn the duties of a liquidator:

  • Resolve any legal disputes or unfinished contracts.
  • Liquidate the company’s assets and use the proceeds to pay creditors.
  • Maintain paperwork deadlines and keep authorities updated.
  • Pay the final VAT bill and costs of liquidation.
  • Keep creditors informed and involve them in decision-making where appropriate.
  • Settle debts by making payments.
  • Report on what went wrong in the business after speaking with the directors.
  • Get the company taken off the company register.

Depending on the details of the liquidation, the liquidator may also have additional specific responsibilities in addition to these general ones. For instance, the liquidator may be tasked with recovering assets that have been fraudulently transferred or looking into the reasons behind the company’s insolvency.

Note: In a CVL or Creditors’ Voluntary Liquidation, the liquidator acts in the best interests of the creditors, not the directors.

Liquidation Process of a Company in the UK

A company’s liquidation process happens in several steps. The steps are as follows:

  1. Determine to Liquidate: First, you decide to close the company. The closer can be your choice or a court order.
  2. Get a Liquidator: You pick someone to manage the process. This person can be independent or from a specialized company.
  3. Check What’s Owned and Owed: The liquidator looks at what the company owns (like buildings, stuff, and money) and what it owes (like loans, wages, and taxes).
  4. Tell Creditors and Owners: The liquidator tells everyone the company owes money to and the owners that the company is closing. They usually send letters or make public notices.
  5. Sell Stuff: The liquidator sells the company’s stuff to get money. They can do this through auctions, private sales, or selling to people involved with the company. The goal is to get as much money as possible to pay off debts.
  6. Pay Debts: The money from selling stuff is used to pay off the company’s debts. First, the money is paid to those with a legal right to specific things (like a bank with a mortgage). Then the others. If there’s money left, it goes to the owners.
  7. Close the Company: The company officially closes once everything’s sold and debts are paid. The liquidator tells the government to remove it from the list of companies.
  8. Report Everything: The liquidator often writes a final report. It explains how they liquidated, sold things, paid debts, and what happened in the end.
  9. Keeping Records: Regardless of whether your company is dissolved or liquidated, you should keep all the records.

Compulsory Liquidation vs. Voluntary Liquidation

The differences between compulsory and voluntary liquidation are as follows:

  • Initiation: An outside party, typically a creditor, starts a compulsory liquidation by taking legal action to force a company into liquidation. Regulatory authorities or a court order can also initiate it.

    When the shareholders or directors of the company decide to wind up the company’s affairs, they start a voluntary liquidation. It is a proactive decision made when the company is solvent.
  • Court Involvement: In a compulsory liquidation, a court hearing is involved. Usually, a voluntary liquidation doesn’t demand court involvement.
  • Cost: Compulsory liquidation is an expensive process. Voluntary liquidation can be less costly compared to a compulsory one.
  • Control: The compulsory liquidation process is overseen by a court-appointed official or insolvency practitioner—also known as a liquidator. The liquidator takes control of the company’s assets and ensures they are sold to repay creditors.

    In voluntary liquidation, the company’s shareholders appoint a liquidator of their choice and maintain more control over the process.

Advantages and Disadvantages of Liquidation

The liquidation process of a company has its own advantages and disadvantages. Today, we explored both for your information.

Advantages of Liquidation

  • Debts Are Written Off: Once a company is liquidated and its assets have been sold, any remaining debts are written off. This can relieve directors and shareholders, who are no longer personally liable for the company’s debts.
  • Legal Action Is Suspended: Any legal action taken against the company will be suspended while liquidating. This can give the company and its directors some breathing space to deal with the liquidation process.
  • Staff Can Claim Redundancy Pay: Employees of a company in liquidation are entitled to claim redundancy pay from the government. This can help them support themselves while they find new employment.
  • Leases Can Be Canceled: The liquidator can cancel the company’s leases, saving the company money.
  • Relatively Low Costs Are Involved: The costs of liquidating a company are relatively low.
  • Avoid Court Processes: Liquidation can be relatively straightforward, avoiding lengthy and costly court proceedings.

Disadvantages of Liquidation

  • Loss of Business: Liquidation means the company’s end, which may result in job losses for employees and the loss of a going concern.
  • Costs: Liquidation can be costly, particularly if the company is insolvent. The liquidation costs can include legal fees, accounting fees, and the costs of selling the company’s assets.
  • Loss of Control: When a company enters liquidation, the directors lose control, and the liquidator takes over. This can be a significant disadvantage for company directors who want to retain some control over the company’s assets or who want to try to save the business.
  • Loss of Employee Teams: When a liquidator takes charge, they make the company’s employees redundant. Employees acting in their best interests will seek employment elsewhere. Consequently, the company loses productive and experienced staff members.

In a nutshell, liquidation is a complex process with both benefits and drawbacks. It is crucial to weigh the pros and cons before deciding whether to liquidate a company.

Difference Between Liquidation And Winding up

Liquidation and winding up are two procedures for closing or dissolving a company. But the two procedures had a few distinctions between them.

Take a look below to learn about those:

Definition: Winding up is concluding all business affairs and closing a company—including liquidation or dissolution. Liquidation is selling company assets to pay creditors and closing the business.

Meaning: Winding up means completely dissolving the company, and no further operations can be done in the company’s name. Liquidation means disposing of the company’s assets, properties, or both to pay off its liabilities.

Included Activities: Winding up activities are:

  • Filling out a resolution/petition.
  • appointment of a liquidator.
  • declaration receipt.
  • report preparation.
  • Disclosures to the Registrar of Companies etc.

Liquidation activities are:

  • Appointing a liquidator to sell off the company’s assets.
  • Liabilities payments.
  • preparing the liquidation report.

What If I Can’t Afford to Liquidate My Company?

Sometimes, company owners cannot even pay for their company’s liquidation. Now, if your business is in deep financial trouble, meaning you can’t afford to wrap it up, you’ll probably need to opt for a formal insolvency liquidation process like a Creditor’s Voluntary Liquidation (CVL).

As the company’s director, it is entirely up to you to apply for a CVL; a creditor won’t force you to. While CVL might seem pricier initially because you need to cover the liquidator’s fees, it offers you more control over the entire process. In the long term, this can save you more money.

If you wait for a compulsory liquidation, things can get tricky. The director—assuming you are—might face an investigation for misfeasance. And if you’re found responsible, you’ll be personally on the hook for the debts.

And here’s the kicker: If the company’s assets, accounts receivable, or bank balance can’t cover the liquidator’s costs, it’s up to you! As the company director, you have to find the funds. You must come up with the money—maybe raise a fund or something.

How to Avoid Liquidation

A company should avoid liquidation until the last time—if you don’t want to lose the company. It’s a last resort when you don’t want to or can’t continue anymore. Here, we briefly mentioned the means that you can follow to learn how to avoid a company liquidation.

Manage Cash Flow Carefully

Monitor Debt Levels

Have a Plan for Financial Difficulties

Build Strong Relationships with Creditors

Seek Professional Help

Consider Restructuring

Explore Alternatives to Liquidation

Stay Informed and Adapt

FAQs on Liquidation Process of a Company

What Is the Insolvency Act 1986?

In the United Kingdom, the Insolvency Act 1986 is a significant piece of legislation that governs various aspects of insolvency, bankruptcy, and company liquidation procedures. It provides a complete set of rules about how to deal with financial trouble, close down a business, and the rights and responsibilities of creditors, directors, and people who work in insolvency.

How Long Does Liquidation Last in the UK?

The length of a liquidation is not subject to legal restrictions. The average duration of a liquidation is one year, but it can last longer. It depends on the assets to be liquidated and the time required to settle creditors’ claims.

What Is the Liquidation Period?

The liquidation period is the amount of time during which a liquidator sells the assets of an insolvent company and distributes the proceeds to creditors and shareholders. The liquidation period typically begins on the date that the liquidator is appointed and ends on the date that the company is dissolved.

What Is Liquidation Strategies?

The various plans or methods used to close a business, sell its assets, or convert those assets into cash are liquidation strategies. These strategies are commonly used when a company ceases operations, dissolves, or declares bankruptcy.

Upon Liquidation, Is a Company Dissolved?

No, following liquidation, a company is not dissolved. Liquidation and dissolution of a company are two distinct processes. A company is liquidated when its assets are sold to claimants. On the other hand, a company is dissolved when its registration is canceled.

Is a Liquidator Required to Notify Anyone of His or Her Appointment?

Yes. A liquidator must publish a notice of appointment in the Gazette and notify the Registrar within 14 days of being appointed. If the liquidation is voluntary, the liquidator may also provide notice in any manner he or she deems appropriate.

What Does Happen to a Director of a Company in Liquidation?

Directors no longer have control over a company or anything it owns when a liquidator is hired to liquidate it. They are not even permitted to act for or on behalf of the company.

A director must:

  • Provide the liquidator with any information about the company they request.
  • Turn over the company’s property, documents, and records.
  • Allow the liquidator to interview them if the liquidator requests it.

Who Is Paid First in Liquidation?

Secured creditors are generally prioritized, so they get paid first in liquidation. Then come the unsecured creditors. Most of the time, the remaining debt holders are paid before equity shareholders.

Why Is Liquidation Used?

The liquidation process of a company is used for various reasons, including:

  • To wind up an insolvent company: Liquidation is the most common way to wind up an insolvent company, meaning a company cannot pay its debts as they fall due. Liquidation involves selling the company’s assets and distributing the proceeds to creditors and shareholders per the law.
  • To close a solvent company: Liquidation can also be used to close a solvent company, meaning a company that can pay its debts. This may be needed if the company’s owners wish to retire or the business is no longer profitable.
  • To recover assets from a fraudulent company: Liquidation can also be used to recover assets from a fraudulent company. This entails selling the company’s assets and distributing the proceeds to the fraud victims.

Who Pays for Liquidation?

Most of the time, the money from selling the company’s assets will cover the liquidation costs and any money owed to creditors or shareholders.

The liquidation process will be paid first, and the remaining assets will be paid for. So, as the liquidation goes on, it can become less likely that shareholders will get the total amount they are owed.

What Is a Liquidation Order?

A liquidation order is a court order that winds up a company and appoints a liquidator to sell its assets and distribute the proceeds to its creditors and shareholders. Liquidation orders are typically granted when a company is insolvent, meaning it cannot pay its debts as they fall due.

However, liquidation orders can also be granted in other circumstances, such as when a company is found to have engaged in fraudulent or illegal activity.

To obtain a liquidation order, a creditor must file a petition with the court. The petition must explain why the company should be liquidated, such as if it is bankrupt or has been involved in fraud. If the court is satisfied that the liquidation grounds have been met, it will issue a liquidation order.

What Is Company Administration?

Your business can go into administration if it owes money and can not repay it. People or groups who owe you money—called creditors—will not be able to sue you, and no one will be able to shut down your business while it is being administered. Administration can mean that your company does not have to pay all its debts in total, but it can still be wound up.

Can I Reuse a Company Name After Insolvent Liquidation?

The directors are prohibited from using the same or a similar trading name for at least five years after the company enters insolvent liquidation. If they violate this restriction, it will be considered a criminal offense, and they will be held personally liable for the new company’s debts.

However, there are exceptions. The following are the three exceptions to reusing the name:

  1. If you had another company already trading and using the same or similar name for the last 12 months,
  2. If you buy the assets and business from the liquidator, notify all creditors within 28 days of the purchase, including placing a notice in “The Gazette.”
  3. If you have applied to the court to use it and been granted consent.

What Is a Company Voluntary Arrangement (CVA)?

A Company Voluntary Arrangement (CVA) lets your limited company pay its debts over time if it is insolvent. Your limited company can keep doing business if its creditors agree. You should apply for an Individual Voluntary Arrangement (IVA) if you are a sole trader or self-employed person.

What Happens to Employees When a Company Goes Into Liquidation?

Unfortunately, every employee immediately loses their job when a company is liquidated. This is because liquidation—whether it involves a solvent or insolvent company—is a large-scale terminal process that leads to the company’s permanent closure.

Wrapping up

Liquidation is the final step, and it is essential to understand the implications before making a decision. It can significantly impact employees, creditors, shareholders, and other stakeholders.

Liquidation is not always the best option for a company in financial difficulty. Other options exist, such as restructuring or administration. Restructuring can entail renegotiating debts with creditors or liquidating non-core assets. Administration is a court-supervised process that can give a company more time to turn its finances around.

If a company is considering liquidation, it must seek professional advice from an insolvency practitioner. An insolvency practitioner can assess the company’s financial situation and advise on the best course of action.

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