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What happens to shareholders in liquidation?

What happens to shareholders in liquidation. Written by John A Waller, Director. reviewed May 11th,2022.

What happens to shareholders in liquidation, and what types of liquidation exist?

Three types of liquidation remain available.

Before considering a liquidation, understand the types available to companies.

If your company is insolvent, then available:

For solvent companies:

When liquidating a limited company, its assets are sold so to pay off its debt. All the remaining money goes to shareholders. You will need to obtain a validation order to access your company’s bank account. However, if the money is not shared between shareholders by the time the company is removed from the register at companies house,then it is passed over to the state.

What are shareholders’ liabilities in liquidation?

Shareholders’ liability remains limited to the ‘nominal’ value of the shares they buy in the company if a company fails. Usually, the nominal value of a share is £1, minimising the personal liability of shareholders if the company fails and enters insolvency.

Creditors Voluntary Liquidation (CVL) and compulsory liquidation

Creditor’s Voluntary Liquidation and compulsory liquidation share the process of liquidating an insolvent limited company. The company’s creditors control the liquidation, not shareholders. Therefore, the creditors appoint the liquidator,

However, compared to an MVL process, shareholders usually have little hope of any dividend payout, generally in an insolvent liquidation. Companies have little if any money to pay the companies creditors. Recent changes to payments to the HMRC reduce even further chances of payment. Therefore, shareholders ranking below unsecured creditors now have little prospect of payment.

What happens to shareholders in liquidation – Members Voluntary Liquidation (MVL)

A Member’s Voluntary Liquidation applies to closing a solvent company. It leads to the orderly closure of a limited company, where shareholders and directors agree that the company no longer has to continue trading, so it has no further use.

So an MVL means the appointed liquidator liquidates the company’s assets to enable distribution to creditors, leaving a surplus payable to shareholders. Once actioned, the liquidator applies to the companies house to have the company formally dissolved.

In a Member’s Voluntary Liquidation, creditors’ interests are not predominant. Shareholders have some control over the process. With an MVL, shareholders appoint the liquidator of their choice, unlike with Creditors Voluntary Liquidation.

A MVL remains a solvent liquidation. Shareholders assume their shareholding repayment in part or full from the appointed liquidator upon realising the company’s assets. The liquidator must pay the company’s creditors before distribution to shareholders.

Are shareholders responsible for bounce back loan repayment?


Bounce Back Loans are:

  • Guaranteed by the UK government in the event of failure of the company. (Providing the loan was properly applied for and used by the borrower);
  • Shareholders remain only liable for the value of their shares.

Bounce Back Loan support is available for those concerned from the team at HBG Advisory.

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