What happens when your company is liquidated?

Liquidation can sound like a daunting prospect if you’re a company director, especially if coupled with insolvency and the pressure from creditors that often comes with it. However, if your company is in such a position, and you’re fully aware that it cannot pay its liabilities as and when they fall due, voluntarily entering liquidation before creditors force it into compulsory liquidation can be the best way forward. 

So, what happens when your company enters an insolvent liquidation?  

Realising that your company is insolvent. What are the signs to watch out for? 

One of your directorial duties is to know your company’s solvent position. If you recognise the signs of insolvency, you must take the necessary steps to alleviate its issues before they threaten the company’s future. 

These signs of insolvency could include: 

Problems with the company’s cash flow 

Balance sheet problems  

Legal action from creditors, including Statutory Demands and County Court Judgments (CCJs) 

As soon as you’re aware of any of the above, you should contact a licensed and regulated insolvency practitioner who can advise you of your options. By acting fast, rather than hoping that the problem will just go away, you stand a better chance of achieving your desired outcome for the company. 

Can you save your insolvent company? 

Depending on your company’s circumstances and if you act immediately, it might be possible to save your insolvent company, allowing it to continue trading and potentially saving jobs. 

Your options for rescuing your insolvent company could include: 

1. Repaying the debt in tailored, affordable instalments 

If your company has a viable business model which could potentially be profitable without its burdensome debts, then it might be suitable to enter a Company Voluntary Arrangement (CVA). This is a formal and legally binding repayment arrangement, wherein the company repays a portion of its unsecured debts at a rate that it can afford on a monthly basis. The arrangement allows your company to continue trading whilst repaying its debts, maintaining a presence in the market, and potentially preserving jobs.  

2. Restructuring the company through administration  

If your company is struggling with more intense creditor pressure, or there are deeper-rooted issues that repayment alone wouldn’t solve, then it might require more in-depth restructuring. Administration can help by providing a buffer between the company and its creditors, while an insolvency practitioner looks into the company’s affairs and makes the changes necessary to return the company to a profitable state and decide the best way forward.  

If the company’s debts are of such a level that repayment wouldn’t be feasible, or if you no longer want the company to continue, you can close the company through a Creditors Voluntary Liquidation (CVL). 

A CVL is a formal, legally binding process that allows you to close the company in an orderly manner, writing off your unsecured debts and stopping all further creditor action and pressure. The process is carried out by a licensed and regulated insolvency practitioner (IP), who will discuss the company’s situation with you, outline how a CVL could be paid for, and what it could mean for you going forward. 

How liquidation works 

If you and your assigned IP decide that liquidation is the best option for your company, they’ll take the initial steps to begin the process, which involves collating a list of the company’s creditors. They will be invited to a creditors’ meeting, and ask you to create a statement of affairs, provide details of the value of any company assets, and reasons why the company became insolvent. 

Ideally, the company’s creditors and shareholders will approve the proposed liquidation, the IP becomes the company’s liquidator, and they will commence the liquidation process. 

During the process, the IP will: 

Realise the company’s assets.  

Handle employee claims.  

Investigate your directorial conduct in the period leading up to and during the company’s insolvency, and pass details on to The Insolvency Service. 

Communicate with the company’s creditors. 

Create an agreement of claims for distribution. 

What happens post-liquidation 

With your company’s liquidation finalised, the company closes, and its unsecured debts die with it. Limited companies have limited liability protection, so the company’s debts shouldn’t affect you personally so long as you’ve fulfilled your directorial duties, have no personal guarantees and have no overdrawn directors’ loan accounts.  

You may also be able to set up a new company once the old one is liquidated, so long as there are no grounds for director disqualification. There may be restrictions around using a name or trading style similar to the old company. 
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