Liquidation Of A Limited Company

Liquidation of a limited Company. Author: John A Waller, Consultant. reviewed: July 20th, 2024.

Considering a liquidation of A limited company in England and Wales?

Requiring to close your limited company in the UK requires a UK Licensed Insolvency Practitioner (meet the team at HBG Advisory).

The process, called a ‘Winding-UP,’ is part of the Insolvency family. It closes the limited company with debts and then faces creditor pressure for good. 

Please remember that a limited company is a separate legal entity.

A limited company going into liquidation entails:

  • Closing your business officially;
  • Realising company assets; 
  • Make staff and directors redundant;
  • Then, the Liquidator had the company struck off from the register at Companies House. 

First, you need to determine if the company is solvent. Depending on that, the IP will determine the type of liquidation required. So if:

Please read How do I liquidate my company for further details.

Can an insolvent limited Company liquidate?

Can an insolvent limited company liquidate? Yes

How can an insolvent company liquidate?

Liquidation of an insolvent limited company.

Firstly:

Apply to the court to either close or ‘wind up’ the company, which owes you money once all other means have failed. Doing so results in compulsory liquidation of the company owing you money. However, applying for a winding-up order is powerful leverage to prompt your debtor to pay you.

Therefore, to commence winding up a company, you need to:

  • Be owed £750 or more and
  • Prove the company cannot pay you.

Once the company enters a Compulsory Liquidation:

  • Your debtor’s company assets are then sold;
  • legal disputes cease;
  • The company collects money owed by its debtor and any other source;
  • Then, priority distributes funds to the liquidated company creditors.

Can Directors or Shareholders Liquidate the Company?

No.

Notwithstanding whether your company is solvent, limited companies require a licensed Insolvency Practitioner appointed as Liquidator.

Business Insolvency in the UK is complicated, even a simple liquidation. The Liquidator is responsible for distributing the monies of assets liquidated to distribute them to the company’s creditors in order of legal preference. 

Indeed, a company with no assets and insignificant debt requires the Liquidator to judge and investigate the former director’s conduct and management of the company’s finances before their appointment, ensuring no evidence of wrongful trading.

Please note: Directors must legally use an IP when a company is insolvent. A limited company is a separate legal entity.

Liquidation of an Insolvent Company – How Do I Commence?

Voluntary liquidation process.

  1. Establish whether your company is insolvent. Once established, then considered for voluntarily liquidating an insolvent company, Creditors’ Voluntary Liquidation (CVL).
  2. Call a board meeting to discuss the company’s solvency. If established, the company is insolvent.
  3. Then, a licensed insolvency practitioner (government licensed) should be secured to advise the board.
  4. Prepare a statement of affairs for the company detailing the financial insolvency.
  5. Arrange a shareholders meeting to approve the liquidation of the company.
  6. Hold a creditors meeting to advise them of the situation on the statement of affairs.
  7. Subject to the creditors’ approval, the company enters formal insolvency, and the Insolvency Practitioners formally liquidate the company.
  8. Transfer the registered office to the Liquidator’s office address.

For further detailed reading, please read ‘Creditors Voluntary Liquidation‘.

Liquidation Of An Insolvent Limited Company – I can’t afford the cost and fees of a liquidation.

  • Company Directors often quote I can’t afford to liquidate my company. That, though, should not be the case. The liquidation cost of creditors’ voluntary liquidation is often paid out of the proceeds of assets belonging to the company. Therefore, assuming the company has assets in addition to its company debt, you can use a firm of insolvency practitioners. The appointed Liquidator fees remain a preferential creditor. Therefore, the Liquidator draws fees from the company’s assets once realised.
  • Directors who hold back commencing a liquidation process due to affordability then risk a creditor like the HMRC (If your company has HMRC arrears?) presenting a winding-up petition entering a Compulsory Liquidation. Directors have lost their position, and creditors may choose who may liquidate the company.

Are you winding up a limited company with no assets or debts?

Companies with no liabilities (owes no money) or assets may strike off the company. Read more about the company strike-off.

Shielding yourself as a Director

Directors considering liquidating their limited company should know that the Liquidator must examine their behaviour in the period preceding insolvency. 

The Insolvency Practitioner (Meet the Team) will seek evidence of director misconduct, principally wrongful trading. Proof may lead to a director facing a disqualification order and a possible ban stopping you from acting as an officer of any company for up to fifteen years.

Consulting with a qualified insolvency practitioner is the safest way to understand your situation and protect your interests. Choosing voluntary liquidation within your timeframe is preferable to being forced into compulsory liquidation via a Winding Up Order.

Company directors should be aware of the following:

Liquidation Of A Limited Company – How much does it cost to liquidate a company?

First, we need to consider a few things before quoting a price. Free is never free. Directors need extreme care for practitioners who chase later directors’ loans.

The actual cost of any liquidation must consider complex issues, its size, and whether it has more than one site location.

Directors of smaller companies should expect costs of £4000 plus VAT and professional disbursements.

Medium to larger limited companies with fixed assets that require realising mean costs due to time will be higher. Directors should note that individual situations allow liquidation funding through a claim in redundancy for those directors who qualify.

Are Employees Paid? If so, how? If Company in Liquidation?

Employees on the payroll, including directors, qualify for certain statutory redundancy payments when a company becomes insolvent.

Former employees of the liquidated company are entitled to statutory entitlements regarding redundancy claims. They may claim:

  • Outstanding salaries and wages; 
  • Unpaid holiday pay;
  • Statutory notice pay/redundancy pay;
  • Staff redundancies; 
  • Unpaid pension contributions and 
  • Directors’ redundancy pay;
  • Maternity pay.

Employees may be eligible for unemployment benefits once made redundant in a liquidation. For further help with claim director redundancy, read the redundancy claim.

How long does liquidating my company take?

A standard liquidation usually takes one year. However, depending on issues arising, it may extend, especially if relying on land or property sale.

The process doesn’t take long as soon as you appoint a liquidator. It may be as quick as seven working days. Once the insolvency practitioner is the Liquidator, the liquidation will take approximately three months to complete the action process. However, this will usually extend, as the primary aim of liquidating assets can be protracted. The liquidators then must ensure the best return for the creditors of the company liquidated.  

Coronavirus COVID19 pandemic and liquidations

For support and advice on:

  • Raising funds to avoid liquidation, pre-pack administration;
  • Directors claim redundancy;
  • Proposing a pre-pack administration;
  • What will be my liability in liquidation, if any;
  • Arranging a time to pay arrangements with creditors and HMRC;
  • Closing my company with a company dissolution;
  • Concerns over directors disqualification;
  • Business advice for my company and me;
  • Business rescue options available;
  • Personal guarantees and my exposure as a director.

What are the consequences for directors of a liquidation for an insolvent company?

A Liquidation What are the consequences: ceases trading, employees are made redundant, and directors’ powers cease. The appointed Liquidator deals with creditors and then strikes the company from the register at Companies House.

Usually, the former directors can set up a new limited company, provided they are not subject to a directorial ban.

Support Is Just A Call Away
Business recovery for distressed directors and limited companies. Free advice from approachable team of advisors.Tel: 0800 612 5448
Book a Virtual Meeting - Free Confidential Advice
If you need help understanding the best way forward for your company, we can provide confidential free initial advice. You can book a free virtual meeting or call us on 0800 612 5448..
ACCA assisting in liabilities of directors
IPA Logo
TMA Logo
R3 Logo
Act Fast Once You Receive A CCJ.
Liquidation Specialists.
Experts in dealing with Company Debt


    Get Help Today

    1. Name: (*)

    2. Company Name:

    3. Telephone: (*)

    4. Email:

    5. Message:

    *Required Fields

    CALL TODAY FOR
    EXPERT CONFIDENTIAL ADVICE

    0330 056 3120

    Further Reading