Liquidation of an Insolvent Limited Company

The liquidation of an insolvent limited company was written by John A Waller, Director, and Updated on June 20th, 2024.

Liquidation of an insolvent limited company is a legal procedure in which a liquidator assumes office to “wind up” the company’s affairs. At the end of the process, the company ceases to exist. Liquidation, however, does not always result in creditors getting paid.

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What happens to directors in a liquidation?

Once a liquidator is appointed, the directors:

  • no longer has control over the company or everything it owns
  • may no longer act for or on behalf of the company

So you must:

  • Give the liquidator information concerning the company requested;
  • transfer of the company’s assets, records and documents
  • Allow the liquidator to interview you if asked.

It is essential to note that if the liquidator decides your conduct was unfit, you risk a ban from being a director for up to 15 years or prosecution.

Ensure you understand the advantages and disadvantages of liquidation. If in doubt? Contact the team at HBG Advisory.

Liquidate your limited company.

Directors may voluntarily initiate the liquidation of an insolvent limited company.

A company’s liquidation is closing its limited company with shareholder approval. (also named winding up a company).

The company ceases to exist and employs individuals. Once removed (‘struck off’) from the companies house, it no longer exists.

When liquidating a company, the liquidator realises its assets to pay its debts. Once actioned, is there any money left? Then, it is paid to shareholders. The directors no longer have any control over the company’s debt.

Any monies not distributed to the company’s shareholders by the time the company no longer remains registered shall then be the state’s property.

If you wish to reclaim monies after that? You are, therefore, required to restore your dissolved company.

Liquidation applies to the formal insolvency procedure in which an appointed licensed insolvency practitioner closes a limited company.

Liquidation means the company’s assets are sold (liquidated), and the realisations are redistributed to creditors and shareholders of the company liquidated in the order of priority.

As part of their duty in company liquidation, the appointed liquidator strikes the liquidated company of the registrar at companies house. 

Company laws about liquidating a limited company in the UK are determined mainly by the Insolvency Act 1986.

HBG Advisory guides company directors on how to close a company through a company liquidation.

Three types of liquidation:

Apply directly to the court:

A company director may request a court to issue an order to cease trading and commence liquidation (‘wound up). This insolvency process is known as a ‘compulsory liquidation‘. For further reading, please view voluntary or compulsory liquidation.

You need: –

  • Your limited company will not repay its debt of £750 or more;
  • 75% (based on the share value) of shareholders agree the court can wind the company up.

Your limited company can be based anywhere, but it must do most of its business in England, Wales, and Scotland.

Liquidation of an Insolvent Limited Company – What Is Liquidation?

Liquidation guides a business to closure while realising its assets to creditors and shareholders. It is an event when a company becomes insolvent and cannot pay its debts when they fall due. As the company ceases, assets are sold, and the liquidator pays creditors and shareholders, subject to their claims’ priority.

Licensed Insolvency Practitioners act as the appointed Liquidator.

Advice, therefore, is vital to protect creditors’ interests during attempts for business rescue.

If I can’t afford to liquidate my company.

.A liquidation if managed correctly and at the earliest indication of trouble? Then, directors need not pay to liquidate a limited company.

HBG Advisory always aims to ensure that a company’s liquidation remains self-funding. Contact HBG Advisory for Liquidation Advice.

A common misunderstanding is that a director must pay the liquidator’s fees personally if the court liquidates a company or liquidates voluntarily. If detected early, directors act quickly. Then, insolvency can usually be paid for by company assets.

Can an insolvent company liquidate?

Yes!

What is the distinction between Liquidation, Bankruptcy and Winding up?

Liquidation and ‘winding-up’ are insolvency terms used in the same circumstances as corporate insolvency. They refer to the liquidation of a limited company.

Bankruptcy is an insolvency term misused. The term refers to individuals and partnerships, insolvency, and not corporate entities (as in the USA).

Can I Liquidate My Limited Company Myself?

No.

Then how do I liquidate my company?

Any Insolvency process requires the appointment of a UK Licensed Insolvency Practitioner.

To merely strike an insolvent company off is illegal.

Liquidate my business – Meaning.

The process in the UK is to close a limited company down. Many countries adopt a similar method as the UK, including Australia, New Zealand, the Republic of Ireland, the United States, Cyprus and Italy.

The sale of company assets allows the liquidator to pay creditors from liquidation proceeds. Liquidation also refers to a compulsory situation, such as the winding up of the company. Winding up the affairs can be a voluntary reference, as with creditors voluntary liquidation CVL.

The process may also describe a company wishing to strip some of its assets.

Conclusion of a company liquidation means directors must cease using the business name of the former company. HMRC Time To Pay agreements to stop and subject to the liquidator’s report.

However, with an insolvent liquidation, all company debt stops, ceasing to exist. Meanwhile, with solvent liquidation (MVL), the company pays all the company debt and closes.

The final part of company liquidation is to strike the company from the register at companies house.

Liquidation of an Insolvent Limited Company – What are the liquidator’s duties?

The appointed liquidator is a licensed insolvency practitioner, or official receiver authorised to carry out the liquidation process.

Once appointed, they take control of all aspects of the limited company and its business.

They then will:

  • Realise the assets of the company to then distribute to the creditors of the business;
  • Meet deadlines for paperwork while updating authorities;
  • Settle any legal disputes or outstanding contracts;
  • Inform the company’s creditors on progress and, where appropriate, involve them in decisions required;
  • Pay the costs of liquidation;
  • Send to HMRC the final VAT bill;
  • Distribute payments to the company creditors:
  • Examine the former directors and compile a report on why the company failed:
  • Finally, remove the limited company from the companies house register.

In a creditors’ voluntary liquidation, the liquidator represents the interests of the creditors, not the former directors.

Voluntary action by directors is not enforced through court action, as is compulsory liquidation.

Voluntary liquidation for liquidation means prompted when your limited company financially may no longer function. Usually, your limited company has severe creditor pressure chasing invoices or other outstanding debt. Perhaps the company has a winding-up order and is days away from compulsory liquidation? Directors may conclude their company is insolvent and no longer viable.

Therefore, opting for liquidation means you’re using the process to legally close the company by appointing professional licensed help while protecting the company’s creditors. Please view ‘How to Close down an insolvent limited company’ for further reading.

Once the Insolvency Practitioner (IP) is appointed, your director’s position ceases. You will still be required to help the liquidator throughout the liquidation process.

What does it cost? – Who Pays?

Cost varies depending on the size of the company and the issues. Assuming the company is insolvent, voluntary liquidation will be required. The cost of a voluntary liquidation is usually recovered on time. Chargeable time is a significant cost factor in liquidation. Therefore, small limited companies with few assets and closure costs vary from £3,000 to £6,000 plus VAT. That includes an insolvency practitioner’s appointment to assume office as liquidator, creditors’ meeting, and statement of affairs, together with section 100 reports.

Additionally, statutory costs are then incurred:

  • Appraising and selling the assets with third-party RICS valuers;
  • Collecting outstanding monies due to the company’s pre-liquidation;
  • Notifying directors of their duties;
  • Redundancies and employees’ claims;
  • Resolving disputes and any outstanding contracts;
  • Apprising HMRC, Companies House and the Insolvency Service regarding company position;
  • Examining transactions leading up to the closure of the company;
  • Appraising and selling the assets with third-party RICS valuers.

What Happens to Company Directors in Creditors Voluntary Liquidation?

Company directors cease office when a liquidator is appointed. However, it is essential to note that all liquidations require the liquidator to examine the former directors’ conduct up to the date appointed.

Should you find you had not complied with your director’s duties? You may find that the appointed liquidator will report you to the insolvency services in their confidential report, not for your eyes, only for the insolvency service. The report will comment on whether directors had not:

  • Acted in the best interests of the company’s creditors
  • Carry out illegal actions, including fraud or theft.

Therefore, directors may risk accusations of wrongful trading, which can lead to personal liability for the company’s debts and even bans from being directors for up to fifteen years.

So, as a company director, the team at HBG Advisory can advise you on how to commence claiming redundancy from a duly authorised third party.

Which creditors are paid first?

The Insolvency Practitioner realises company assets once valued through an independent qualified valuer. Then, the money raised is distributed to creditors as follows:

  1. The liquidator;
  2. Secured Creditors;
  3. Fixed Charge holders;
  4. Floating charge holders;
  5. Preferential Creditors;
  6. Unsecured Creditors;
  7. Company Shareholders.

Can HMRC hold directors liable for unpaid tax?

Yes

However, circumstances have to prevail.

Changes on December 1st, 2020, to the law relating to tax liabilities of a limited company left unpaid mean HMRC may hold directors liable personally.

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Cost to liquidate a solvent Limited Company.

The cost of liquidating a limited solvent company depends on time costs and the number of issues. For further guidance, view Members Voluntary Liquidation (MVL).

How do I Liquidate My Insolvent Limited Company?

Liquidation – Liquidate your Limited Company

To close a registered limited company, it must go through the liquidation process. Several processes exist. The liquidator, who is a licensed insolvency practitioner, supervises the process.

The liquidator appoints valuers and agents to sell the company’s assets.

Also, the registered office transfers to the liquidator’s office address.

Creditors fill out a proof of debt form, which the liquidator then proves and ranks.

Finally, during the process, the liquidator strikes the company of the registrar of companies. Therefore, the dissolution is the final part of the liquidation.

Liquidation of an Insolvent Limited Company – Company after Liquidation

Once liquidated, a company has ceased trading, removed from the companies house register and closed.

Liquidation of an Insolvent Limited Company – Compulsory Liquidation

The compulsory liquidation of a limited company in England and Wales is a procedure to wind up a company through court instructions. However, the official receiver is usually appointed to realise the company’s assets and then distribute them to its creditors. 

Therefore, a petitioning creditor files the petition in court to proceed with the petition.

Once the court approves the order and enters compulsory liquidation, the company will be formally removed from the register at companies house and dissolved.

Once a petition to Wind Up the company is filed, access your company’s bank account.

Your company’s bank account will be frozen if someone submits a petition to wind up the company.

To access your bank account once this has happened requires a validation order.

Applying for a validation order.

Firstly, inform the individual who filed the winding-up petition of your intention to apply for a validation order and the date. Also, advise them on what court you’ll use.

Then, you must apply to the court about an insolvency issue form IAA. Finally, take the completed documents to court for £155.

Why do companies liquidate?

  • Companies enter liquidation to realise their assets. However, liquidating depends on whether the company is therefore insolvent. Hence, it is not able to pay its creditors. Or the company is solvent, though it wishes to cease trading and realise assets to pay shareholders.

Order of paying creditors in a liquidation?

The order of priority creditors of a company is repaid essentially. We list below the order creditors rank in liquidation once the realisation of assets concludes, along with monies collected owing to the company:

  1. Secured creditors;
  2. Preferential Creditors: preferential creditors include HMRC & Company Employees. Note, however. Effective December 1st 2020. HMRC reacquired its preferential status;
  3. Fixed and floating charges: secured by a debenture registered at the company’s house;
  4. Fixed charge creditors: Usually property and fixed machinery;
  5. Floating charge creditors;
  6. Unsecured creditors;
  7. Connected unsecured creditors;
  8. Company Shareholders.

What Types? – Closure options?

The company ceases to exist upon liquidation. As a director, you and the shareholders may vote on your choice of liquidator.

  • Members Voluntary Liquidation. MVL  – An MVL procedure closes down a solvent-limited solvent company. You have the opportunity to appoint your choice of liquidator.
  • What is a Compulsory Liquidation? – This type of liquidation means you do not have any control. A creditor may petition to wind your limited company up in court, appointing the official receiver.

How do I find the correct insolvency firm for my company?

HBG Advisory offers directors direction and results, protecting your privacy and remaining confidential.

Our highly experienced team deals with companies in financial distress. Therefore, we outlined our plan with the directors at the pre-liquidation meeting. Consequently, you will know your situation and have no surprises later. We have many years of experience dealing with aggrieved creditors and HMRC.

For further help, and if you want to speak to someone about

    • Cost;
    • Time;
    • Types.

Liquidating an Insolvent Limited Company with no assets or money.

Company Directors regularly contact the HBG Advisory team concerned they cannot fund a liquidation, as their limited company has no assets or money. 

Solutions, however, exist. If redundancy payments are due, you may use them to pay the liquidator’s fees – failing, which the directors may need to pay. However, please contact HBG Advisory, and we’ll explain the costs openly.

Re-using the former company names

Suppose you were a company director in 

  • Compulsory liquidation or 
  • Creditors’ voluntary liquidation. 

Then, as a former company director of that company, you remain forbidden from:

  • Managing;
  • Forming or 
  • You promote any business with similar or exact names of your previous liquidated limited company within five years of the liquidation date. 

It also includes the registered name of the company and all trading names (if any).

However, exceptions exist when:

  • A licensed insolvency practitioner giving the legally required notice sells the business;
  • The court grants permission to use the name, therefore;
  • Involved with another limited company using the former name as the liquidated limited company for at least one year.

Other Options for Insolvent Companies.

When you consider liquidating a failing limited company, take the time to compare all the available options. Furthermore, other methods may apply to companies with financial problems, so research options before deciding to liquidate.

Like a company voluntary arrangement (CVA) or company administration, available options provide a viable way for the company to continue trading. However, they remain valuable ways of restructuring a private company and require a licensed practitioner to supervise the process professionally.

What are the Possible Outcomes for Directors?

What are the Liquidation benefits?

Company directors must ensure they do not trade while insolvent. If the company enters liquidation, it may personally impact them. Therefore, once appointed, Insolvency Practitioners must examine previous decisions by the directors before they are appointed liquidators.

Company directors must always act in the best interests of creditors. To protect personally sensitive issues, directors must control the companies’ finances and seek immediate professional help if in doubt.

Understanding the liquidator’s role should help you avoid trading while insolvent and not take care of creditors over and above themselves. If they fail, they may face fraudulent or wrongful trading charges. If proven, you fall exposed to personal liability of company debts.

Alternative Options for Insolvent Companies

When you consider liquidating a company due to financial problems, take the time to compare all the available options. Other options exist for company directors to consider when struggling financially. In addition, action may be available to companies in financial difficulty, so consider exploring these before closing the business via liquidation.

However, a Company Voluntary Arrangement (CVA) or a Company Administration of a limited company will provide a viable way for the business to continue trading. In addition, insolvency procedures, including CVAs and company administration, can be helpful ways to restructure a private company and require a licensed practitioner to supervise the process professionally.

After an Administrator engages and is appointed to apply for a moratorium, the business receives time and refuge from creditors seeking further legal action. 

How long does it take for a company to liquidate?

Appointing a liquidator usually takes up to two weeks, after which the director’s powers cease. Realising the company’s assets can be more involved, depending on its size and structure. Usually, it takes between 6 and 24 months to complete the liquidation.

Apply to the court

Company directors may request a court appointment to liquidate a company, stopping a company from continuing to trade.

Known as a ‘compulsory liquidation’.

To progress such action requires:

  • The company is unable to pay debts of £750 or more.
  • 75% (by the value of shares) of shareholders agree the court can wind up the company.

Your limited company can operate anywhere but must do most of its business in England, Scotland and Wales.

How to apply

Complete the ‘winding-up petition’ (form Comp 1) and forward it to the court enclosing:

  • form Comp 2 confirming the details of your petition;
  • the winding-up resolution from the shareholders

Where you submit the petition depends on the “paid share capital” your company has. You can find this on the Companies House register.

Your paid-up share capital is £120,000 or more.

Submit the petition online to the High Court.

Your paid-up share capital is under £120,000.

Find your nearest court that handles bankruptcy.

Submit the petition online if it’s one of these courts:

Fees

To carry out this type of liquidation:

  • £1,600 to submit the petition
  • £280 for the court hearing

After you apply

However, the court will send you the hearing date once the court approves your application.

You need to do the following before the court hearing:

  • Give (‘serve’) a copy of the petition to your company – fill in a certificate of service to advise the court.
  • Advertise in The Gazette at least seven days before the hearing.
  • Forward a copy of the advert and the certificate of service to the court.

The court hearing

You or your solicitor must attend the court hearing. However, no evidence for the hearing is necessary.

Once the court approves the winding-up order, the court appoints the official receiver to take charge of the liquidation, and then commences liquidating your company. The court forwards a copy of the winding-up order to your company’s registered office.

Your role as a director will change.

Please contact the team at HBG Advisory for further clarification on the liquidation process explained above.

Contains public sector information licensed under the Open Government Licence v3.0.

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