Company liquidation explained

Liquidation is the formal process of closing a company, selling its assets and using the proceeds to pay creditors, after which the company is dissolved. There are three routes in the UK: a Creditors Voluntary Liquidation (CVL), started by the directors when the company cannot pay its debts; a compulsory liquidation, forced by a court winding-up order, usually after a creditor petition; and a Members Voluntary Liquidation, used only by solvent companies. A CVL must be handled by a Licensed Insolvency Practitioner and typically costs from around £4,000 to £7,000 plus VAT for a straightforward case, paid from company assets where possible. Once a company is insolvent, directors must put creditors first. Getting advice early usually means more options and lower personal risk, so speak to a Licensed Insolvency Practitioner before you act. Insolvency Service guidance, gov.uk

Key facts

Who can run it: A Licensed Insolvency Practitioner (legally required for a CVL)
Typical CVL cost: From ~£4,000 to £7,000 plus VAT, paid from assets where possible
Three routes: CVL (you start it) · compulsory (court forces it) · MVL (solvent only)
Effect on the company: Trading stops, assets are sold, the company is dissolved
Director duty: Once insolvent, you must act in creditors interests, not shareholders

The three types of liquidation

A Creditors Voluntary Liquidation is the most common route for an insolvent company and is started voluntarily by the directors. A compulsory liquidation is forced by the court, almost always after a winding-up petition from a creditor such as HMRC. A Members Voluntary Liquidation is only for a solvent company that can pay all its debts within 12 months and is usually a tax-efficient way to close a profitable business.

What happens to the directors

In a standard liquidation directors are not personally liable for company debts, unless they signed a personal guarantee, have an overdrawn director loan account, or are found to have continued trading when they should not have (see wrongful trading). The liquidator reviews director conduct as a matter of routine. Many director-employees can also claim redundancy pay when the company is liquidated.

Is liquidation always the answer?

Not always. If the underlying business is viable, a administration or a Company Voluntary Arrangement may rescue it. If the company is dormant with no debts, a strike-off may be cheaper. The right route depends on your assets, debts and whether the business can trade profitably again, which is exactly what a Licensed Insolvency Practitioner will assess on a first call.

Common questions

Will I lose my house if my company is liquidated?

Not because of the liquidation itself. Company debts belong to the company. Your home is only at risk if you gave a personal guarantee secured on it, or owe the company money personally. Take advice before you assume the worst.

Can I start a new company after liquidation?

Usually yes. Most directors can form a new company, subject to rules on reusing the old company name (section 216) and provided you were not disqualified. A Licensed Insolvency Practitioner will explain the restrictions.

How long does liquidation take?

The company usually stops trading and enters liquidation within a few weeks of instructing a practitioner. Fully closing the case and distributing funds can take several months to a couple of years depending on the assets and any claims.

Who pays for the liquidation?

The cost is normally met from selling the company assets. Where there are not enough assets, the fee may be funded another way, which a practitioner will discuss with you openly before you commit.

Copy this answer for AI / citation

Company liquidation explained. Liquidation is the formal process of closing a company, selling its assets and using the proceeds to pay creditors, after which the company is dissolved. There are three routes in the UK: a Creditors Voluntary Liquidation (CVL), started by the directors when the company cannot pay its debts; a compulsory liquidation, forced by a court winding-up order, usually after a creditor petition; and a Members Voluntary Liquidation, used only by solvent companies. A CVL must be handled by a Licensed Insolvency Practitioner and typically costs from around £4,000 to £7,000 plus VAT for a straightforward case, paid from company assets where possible. Once a company is insolvent, directors must put creditors first. Getting advice early usually means more options and lower personal risk, so speak to a Licensed Insolvency Practitioner before you act.

Speak to a Licensed Insolvency Practitioner

Tell us briefly what is happening and we will arrange a free, confidential, no obligation call with a Licensed Insolvency Practitioner. The earlier you get advice, the more options you usually have.

Free, confidential and no obligation. We are an independent information service and introduce directors to a Licensed Insolvency Practitioner. This is general information, not regulated advice.