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 or MVL; in a compulsory liquidation the Official Receiver is appointed automatically)
- Typical CVL cost
- From around £4,000 to £7,000 plus VAT as a starting point, paid from assets where possible (in Jessica Barker's experience as an insolvency practitioner; there is no published fee scale: how our calculator range is built)
- Typical MVL cost
- From around £4,000 plus VAT, paid from the company's assets (in Jessica Barker's experience as an insolvency practitioner; there is no published fee scale)
- 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', and in line with your fiduciary duties
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What happens once a Liquidator is appointed
- Control passes to the liquidator. Your powers as director end; you cooperate and hand over records.
- Your conduct is reviewed. In every Liquidation, the Liquidator has an obligation to review Director's conduct and the overall trade of the Company.
- Personal exposure is tested. Any personal guarantees will have crystallised upon the Company entering Liquidation and any issues identified during the conduct review will be followed up, such as overdrawn Director's Loan Accounts.
- Life moves on. Most can work or start again; redundancy pay often available where Directors are employees and validly on payroll.
At a glance
| CVL | Compulsory liquidation | MVL | |
|---|---|---|---|
| Who starts it | The directors (board meeting, then shareholder resolutions, gov.uk) | 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 as a starting point (in Jessica Barker's experience as an insolvency practitioner; there is no published fee scale: how our calculator range is built) | Met from company assets; usually no direct fee to the director | From around £4,000 plus VAT (in Jessica Barker's experience as an insolvency 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. In Jessica Barker's experience as an insolvency practitioner, a straightforward CVL costs from around £4,000 to £7,000 plus VAT as a starting point, 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.
People often ask whether a company can go bankrupt. In the UK it cannot: bankruptcy is for people, and a company goes into liquidation or administration instead. See can a company go bankrupt?
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 there are other matters the liquidator investigates, such as carrying on 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 at all, 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.
Where to go from here
- Use the matching template: CVL documents checklist.
- If you decide to speak to a Licensed Insolvency Practitioner, choose your own: our practitioner directory lists every practitioner on the official Insolvency Service register, and how to choose an insolvency practitioner explains what to ask. Always confirm their entry on the official register before you instruct anyone.
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 can be at risk if you gave a personal guarantee, owe the company money personally, or the liquidator's investigation finds matters that lead to action against you. A guarantee does not have to be secured on the home for this: a creditor with a court judgment against you can ask the court for a charging order over your property, and a creditor owed £5,000 or more can apply to make you bankrupt, after which the trustee may sell your home depending on how much equity is in it. Our personal guarantees and your home table sets out each route and the law behind it. 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 the rules, and their exceptions, 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?
Closing the case takes time. The Insolvency Service's study of 2,717 completed CVLs that began in 2017 says “The median length of time it took to complete a CVL was 712 days”, about two years, so about half took longer (Insolvency Service CVL research report). The report adds that this may overstate it: taking off 92 days for the final reporting stage gives 620 days. See our insolvency timings page.
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, such as a deposit towards costs, which a practitioner will discuss with you openly before you commit. The Insolvency Service's study of 2,717 CVLs that began in 2017 gives a different picture: “The median cost (fees as a percentage of the value of the estate) was 163%”, and it records “instances of a third party or a director paying part/all of the fees” (Insolvency Service CVL research report). The two do not say the same thing, so we show both.