When a company is struggling with unmanageable debts, several different parties have the power to demand liquidation. Directors can choose voluntary liquidation, creditors can force liquidation through the courts, HMRC can petition when tax arrears rise, and the Insolvency Service can apply in the public interest. Shareholders can also vote for a solvent liquidation if the company can pay its debts in full.
Liquidation is a formal, regulated process that closes down a company. Because it must be run by a licensed insolvency practitioner, whoever demands liquidation determines how much control directors retain over timing, costs and the way the process unfolds.
In the case of insolvent liquidation, knowing who can take this step helps you judge how urgent your position is and whether you can still take voluntary action before things escalate. Acting early usually gives you more control and reduces personal and legal risk.
Directors can choose to place a company into liquidation
Directors are the most common starting point for liquidation when the company is insolvent.
Creditors’ Voluntary Liquidation
A Creditors’ Voluntary Liquidation is the process directors choose when the company cannot pay its debts on time or in full, and its business can’t be rescued. You appoint a licensed insolvency practitioner who becomes the liquidator and takes control of closing the company.
Directors usually choose a CVL because:
- Debt is unmanageable and creditor pressure is rising
- The business has no realistic prospect of recovery
- HMRC arrears, CCJs or supplier demands have escalated
- Continuing to trade risks wrongful trading
A CVL is a proactive choice. It allows you to close the business in a structured way, stop creditor pressure and protect yourself from increased risk. It is also the safest route when you suspect insolvency, because directors’ duties shift towards creditor interests once you identify insolvency.
Members’ Voluntary Liquidation (MVL)
A Members’ Voluntary Liquidation is a voluntary liquidation for solvent companies. Directors and shareholders choose this when the company can pay all its debts in full and is simply no longer needed. It’s commonly used for closing a business that’s no longer needed, group restructuring and retirement.
To enter an MVL, directors must swear a statutory declaration of solvency, confirming debts can be paid in full within 12 months.
Creditors can force liquidation through the courts
If creditors aren’t being paid, they have the legal right to demand liquidation through a court process.
Any creditor owed £750 or more can file a statutory demand. They could also file a winding-up petition with the courts. Creditors often use this route when they believe the company is insolvent or ignoring repayment demands. HMRC is the UK’s biggest creditor and will petition quickly if tax debts remain unpaid.
If the court approves a winding-up petition, the Compulsory Liquidation process begins. Then an Official Receiver is appointed and control is taken out of directors’ hands.
A creditor may decide to petition when:
- Communications have broken down
- Payments have repeatedly been promised and missed
- HMRC believes arrears are too large for repayment
Once a petition is filed, your options narrow. This is one of the main reasons directors choose a voluntary route early, rather than waiting for Compulsory Liquidation to be forced on them.
The Insolvency Service can start action in the public interest
The Insolvency Service has legal powers to petition for compulsory liquidation in the public interest. Examples include:
- Fraud involving a Bounce Back Loan
- Companies set up to mislead consumers or investors
- Persistent breaches of insolvency or company law
Their role includes enforcing insolvency law, investigating misconduct and protecting the wider market. If they determine the company poses a risk to creditors or the public, they can apply to wind it up even if no creditor has petitioned.
Key takeaways for who can demand liquidation?
- Directors can initiate voluntary liquidation through a CVL or MVL
- Creditors can force liquidation through a winding-up petition
- HMRC is one of the most active petitioning creditors for unpaid tax
- The Insolvency Service can petition in the public interest
- Shareholders can vote for liquidation only if the company is solvent
- Acting early gives directors the best chance of choosing a voluntary route and protecting their position
Get advice on who can demand the liquidation of a company
If you think a creditor could force liquidation, the safest step is to speak to a qualified insolvency practitioner before action is taken against you. Once a statutory demand or winding-up petition is issued, control shifts quickly and you may lose options you still have today.
Early advice often prevents matters reaching the court at all. It also shows that you’ve acted responsibly, which is an important part of meeting your legal duties as a director. If you feel creditor pressure rising, or you’re unsure how close you are to a petition being filed, get in touch for free, confidential guidance before you lose the ability to choose your route.
