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; and a Members' Voluntary Liquidation, used only by solvent companies. Insolvency Service guidance, gov.uk
- Who can run it
- A Licensed Insolvency Practitioner (legally required for a CVL)
- Typical CVL cost
- From around £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'
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What happens to a director in liquidation
- Control passes to the liquidator. Your powers as director end; you cooperate and hand over records.
- Your conduct is reviewed. Routine for directors who acted reasonably.
- Personal exposure is tested. Guarantees, loan account, wrongful trading pursued now.
- Life moves on. Most can work or start again; redundancy pay often available.
At a glance
| CVL | Compulsory liquidation | MVL | |
|---|---|---|---|
| Who starts it | The directors (75% shareholder resolution) | The court, after a creditor petition | The shareholders of a solvent company |
| Company position | Insolvent, no realistic rescue | Insolvent, and a creditor forced the issue | Solvent: all debts payable within 12 months |
| Who runs it | A Licensed Insolvency Practitioner | The Official Receiver takes control as liquidator | A Licensed Insolvency Practitioner, after a declaration of solvency |
| Typical cost | From around £4,000 to £7,000 plus VAT | Met from company assets; usually no direct fee to the director | A fee set by the practitioner |
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. It 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. Estimate your own liquidation cost. 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 aren't 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. Getting advice early usually means more options and lower personal risk, so speak to one before you act.
Related data
Our UK company insolvency tracker: The latest monthly company insolvency figures for England and Wales, from the Insolvency Service. Every page on our data hub names its official source.
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 aren't enough assets, the fee may be funded another way, which a practitioner will discuss with you openly before you commit.