You likely have many questions about placing your company into liquidation, and we’re here to help. We provide director-focused professional advice to ensure that you get the best outcome for your circumstances. In this blog, we’re telling you about the liquidation process.
What is liquidation?
A voluntary liquidation is the formal closure of a Limited Company and is decided upon by the directors and shareholders. Remember that compulsory liquidation is different, as it is decided by the creditors. Each liquidation process must be carried out by a licensed insolvency practitioner who will act as the appointed liquidator.
If you’re considering liquidation, we always advise that you obtain some free, independent advice before making any decisions and starting the liquidation process. You must ensure that you check the implications for the company’s directors should the business be placed into liquidation.
There can be many hidden extras when it comes to liquidation, and by seeking advice from a trusted provider, you can ensure that you are aware of these potential risks before entering the liquidation process.
What are the different types of liquidation?
There are many different types of liquidation that you could enter, depending on your circumstances. A common liquidation is a creditors’ voluntary liquidation. This type of liquidation is for insolvent companies where the director has recognised that they cannot afford to pay debts when they are due and has therefore filed for liquidation.
In contrast, compulsory liquidation is forced upon a company’s director by the creditors. This is usually completed using a winding-up petition, and the director will be given a date by which they should pay all company debts. If the director fails to pay the debts, the company will be wound up. Both of these are options if you have debts you are unable to pay.
A member’s voluntary liquidation can be used by a solvent company that can afford to pay the company’s debts over a specified period. All of these liquidation types require a licensed insolvency practitioner to be completed successfully.
What is the company liquidation process?
This is the liquidation process for a voluntary company closure. The liquidation proceedings and timescales will vary depending on the type of company liquidation that you enter. Here is an overview of how the process works and the timescales for each stage of voluntary liquidation. The company liquidation begins when you have an appointed insolvency practitioner.
Stage 1 – initial enquiry
Timeline: On the same day
We will set up either an online meeting or a face-to-face meeting at a time and place that suits you. At least one of the company’s directors will need to be present to explain the financial situation.
The financial position will need to be evidenced using company accounts. These accounts will be checked thoroughly to ensure that you haven’t committed any wrongdoing, such as preferential payments or fraudulent trading. If you have taken a bounce-back loan, this will also be assessed to check that you applied for the correct amount and that it was used to benefit the company.
Stage 2– Written proposal for company liquidation
Timeline: Usually 1-14 days
We review all the information and advise you on all the available options (not just liquidation). We’ll also provide you with a full proposal for you to consider. We talk about how to deal with any company assets (and whether you wish to purchase them), along with any other matters specific to your company, such as leases, personal guarantees or contracts.
Stage 3 – Sign letter of engagement and schedule creditors meeting
Timeline: Usually 1-3 days
If you would like to go ahead and you have agreed to our proposal, you formally instruct us. With the assistance of the insolvency practitioner, we will call a meeting of shareholders and creditors, which will usually take place 14 to 21 days after formal instruction. Secured creditors, unsecured creditors and others that are owed money may be present at the meeting, but it’s quite likely that none of the creditors will attend.
Stage 4- Creditors meeting
Timeline: Usually 21 days
The shareholders’ meeting takes place before the creditors’ meeting, and both meetings are held remotely. You will nominate one of your company’s directors to attend by phone. Any creditors who have questions are asked to put them forward on the conference call. The meetings usually last between 30-90 minutes. The company is then legally placed into liquidation.
Stage 5 – Post liquidation support
Timeline: Usually 9-12 months
We work with you to ensure that the company’s books and records are moved to the liquidator’s office and that all the company’s assets, if there are any, are properly realised. Each director is required to complete a questionnaire, and once we are happy that there are no outstanding matters, the liquidation is closed. Three months thereafter, the company is dissolved (removed from Companies House) and will cease to exist.
I’ve liquidated my company – what next?
If you’ve liquidated your limited company through a Creditors’ Voluntary Liquidation, then, as a director, you may have many questions about what happens next. Let’s explore some of the issues that you may be worried about based on your company’s situation.
Will I be personally liable for the company debt?
A limited company is classed as a separate legal entity, so directors will not be liable for its debt. Having said that, there are certain situations where you could be held liable.
Personal guarantees
If you have signed personal guarantees on behalf of the company, then you will be held personally liable for whatever debts you have guaranteed that are not repaid as part of the liquidation process. However, it is quite common for banks to agree for such debts to be repaid over a period of time.
Wrongful trading
If there have been any incidents of wrongful trading, for example, trading whilst insolvent. An example of trading while insolvent could be continuing to take deposits from customers with little or no intention of fulfilling the order.
As part of your director’s duties, you have to put your company’s creditors first. By increasing your debts and trading while insolvent, you’re not acting within their best interests.
Outstanding director’s loan account
Director’s loan accounts are often left until later down the line, which can have extremely negative effects on the director of a company. If you have an overdrawn directors loan account and it is not dealt with upfront, you will be personally liable for paying back the debt.
In contrast, if the loan is identified early, you may be able to organise a deal with the insolvency practitioner. This deal will depend on your personal ability to pay back the money. For example, if you’re in rented accommodation with no personal assets and no savings, they may write off the loan. However, if you own a house with equity and have assets and savings, you will be expected to pay some or all of the loan off.
Can I set up another limited company?
Depending on your circumstances, you may be able to set up another limited company once the liquidation has been finalised. If the insolvent company has chosen a pre-pack liquidation (where a newly-formed company purchases the assets of an existing company that is then liquidated), it is unlikely that a director would be banned, as they are usually continuing their role within the new company.
Provided that there hasn’t been a breach of the Company Directors Disqualification Act 1986 (which can see you face disqualification from being a director for up to 15 years), then there shouldn’t be an issue for you to set up a new limited company.
The thought of closing a Limited company can be very scary, and the process can sometimes seem confusing. Our experienced team can guide you through a number of options and help you decide which best suits you.
Wherever you’re at, it all starts with a conversation. We operate all over the country and can meet you wherever’s convenient or virtually if that suits you better. Our initial conversation is completely free, with no strings attached, and completely confidential.
If you are concerned about the implications of liquidating your limited company and the impact that it may have, please get in touch with the experts at 1st Business Rescue. We are here to support you and guide you each and every step of the way.
Liquidation Process FAQs
Why would a company go into liquidation?
Companies usually go into liquidation due to financial difficulties. In some cases, there may be no hope of paying back company debts. These companies will enter either a creditor’s voluntary liquidation or a compulsory liquidation. Some companies will be able to pay their debts over a set period of time, these companies can use a member’s voluntary liquidation.
What are the types of liquidation?
Creditor’s voluntary liquidation: A voluntary process that company directors choose. This method is used by insolvent companies who cannot afford to pay their debts when they fall due. Entering this type of liquidation reflects better on directors as they have taken steps to reduce the impact on creditors.
Compulsory liquidation: This type of liquidation is forced upon directors by their creditors. It usually begins with a winding up petition and a court date. If the money owed is not paid by this date, you will face compulsory liquidation and have little control over the situation.
Member’s voluntary liquidation: This method is used by solvent companies that can afford to pay their debts over a specified period of time. You’ll organise agreements with the creditors to pay them by a specific date.
Contact us if you’re not sure which type of liquidation is right for you. We’ll assess your personal circumstances and make suggestions to support you.
What is the role of a liquidator?
When you enter liquidation, the liquidator will deal with all creditors. They will be responsible for closing the company and ensuring that all aspects have been taken care of. Ensure that your liquidator has checked everything before you agree to work with them, such as your director’s loan account.
How long does the liquidation process take?
The timeframe of the liquidation process varies depending on your situation. A straightforward liquidation can be settled within a few months. However, more complicated liquidations with many creditors can take longer.
Can a company be rescued during liquidation?
Usually, when you’ve already entered a liquidation procedure, you cannot rescue the company. However, there are alternative processes that may be better suited to you. For example, you could look into a pre-pack liquidation. We can assess your situation and help you to decide if this is an option for you.
I'm Chris Worden, Managing Director at 1st Business Rescue. With over 7 years of experience, I help UK directors navigate the complex world of UK corporate insolvency. We offer free and independent advice to UK directors and advise them about what options may be available to them if their limited company starts to struggle.
I am passionate about helping other directors overcome their business challenges and get back on their feet, as I was once in the same position as them. I had a business that became insolvent, and the advice out there was confusing and overwhelming. I am here to provide honest and valuable advice to UK directors.
I am proud to say that we are one of the only 5-star corporate insolvency companies on Trustpilot with hundreds of 5-star reviews, and we publish videos weekly on our YouTube channel. Our channel is designed to educate UK directors about insolvency and debt advice. Check it out here:
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