What Happens When You Put Your Company Into Liquidation?

If your business can't pay its debts, you may be considering liquidation. Chris Worden explains the process in plain English, so you know what to expect and how to prepare.

Understanding Company Liquidation

Liquidation is a structured legal process for closing a company that can't pay its debts. Thousands of UK directors face this situation each year. Chris Worden guides you through the steps, so you can approach it with clarity, not panic.

Is Liquidation Right for Your Company?

If your company is insolvent—unable to pay debts as they fall due, liabilities exceed assets, or legal action has been taken—liquidation may be an option. The most common route is Creditors' Voluntary Liquidation (CVL), where directors choose to close the company rather than wait for creditors or HMRC to force the issue.

Director Responsibilities

Once insolvent, directors must prioritise creditors' interests. Failing to do so can lead to serious consequences, including personal liability. Chris Worden stresses the importance of acting responsibly and seeking advice early.

The Voluntary Liquidation Process: Step by Step

1. Speak to an advisor: Consult an insolvency professional. Only a licensed insolvency practitioner can carry out liquidation.
2. Board resolution: Directors hold a meeting and resolve to liquidate the company.
3. Shareholder approval: At least 75% (by value) of shareholders must agree.
4. Creditors' meeting: Creditors are informed, can ask questions, and vote on the liquidator.
5. Liquidator takes over: Company bank accounts are frozen, assets are sold, and creditor claims are processed.
6. Director investigation: The liquidator reviews director conduct, loan accounts, and personal guarantees.
7. Final steps: Once all matters are resolved, the company is struck off at Companies House.

What Happens to Staff and Creditors?

Staff are made redundant and can claim unpaid wages, holiday pay, redundancy, and notice pay from the Redundancy Payments Service. Creditors are paid in order: secured, preferential (like HMRC), unsecured, then connected parties. Unsecured creditors often receive little or nothing.

Risks for Directors

• Personal guarantees: You may be liable if you signed one.
• Overdrawn director's loan account: You may have to repay money owed to the company.
• Wrongful trading: Continuing to trade when insolvent can lead to disqualification or personal liability.

Chris Worden recommends checking your accounts and seeking advice if you're unsure about your position.

How Long Does Liquidation Take?

Most liquidations are completed within 12 months, but complex cases can take longer. Once finished, the company is removed from Companies House.

Preparing for Liquidation

• Gather all records: bank statements, contracts, leases, up-to-date management information
• Check your director's loan account
• Review personal guarantees
• Be honest with the insolvency practitioner

Preparation and transparency help reduce stress and ensure a smoother process.

Key Takeaways

• Liquidation is a structured process, not a punishment
• Directors must act in creditors' interests
• Seek advice early to protect yourself
• Staff and creditors have specific rights and claims
• Chris Worden and Director First can guide you through every step

Frequently Asked Questions

What is the first step in company liquidation?

Speak to a licensed insolvency practitioner for advice and to start the process.

Will I be personally liable for company debts?

Only if you've signed personal guarantees, have an overdrawn director's loan account, or have traded wrongfully.

What happens to my staff during liquidation?

Staff are made redundant and can claim statutory payments from the Redundancy Payments Service.

How long does liquidation take?

Most cases are completed within 12 months, but complex cases can take longer.

Can I start another company after liquidation?

Yes, unless you are disqualified as a director for misconduct.