Frequently Asked Questions

Voluntary company liquidation in the UK is the legal procedure by which a limited company ceases trading and is formally dissolved. Typically during this process, employees are made redundant, and the company’s assets are sold.

There are three main types of company liquidation, each serving a different purpose:

Members’ Voluntary Liquidation (MVL): Used by solvent companies that can pay their debts in full. This is a tax-efficient way to close a cash-rich business, often used when directors are retiring or restructuring.

Creditors’ Voluntary Liquidation (CVL): Chosen by directors when a company is insolvent and unable to pay its debts. It allows for an orderly closure while ensuring legal compliance and fair asset distribution to creditors.

Compulsory Liquidation: Forced by creditors or other stakeholders through a court petition when a company cannot pay its debts. This is a formal, court-driven process that removes control from directors.

The cost of liquidation varies depending on the type of process.

Members’ Voluntary Liquidation (MVL): This is for solvent companies with assets of at least £25k that are looking to close in a tax-efficient manner. Costs typically include insolvency practitioner fees and legal expenses, which can vary based on the company’s size and complexity.

Creditors’ Voluntary Liquidation (CVL): Designed for insolvent companies, the costs might include insolvency practitioner fees, legal costs and expenses related to creditor meetings. The exact amount depends on the company’s financial situation and the complexity of its affairs.

Compulsory Liquidation: Initiated by creditors through a court order, this process might involve court fees, petitioning creditors’ costs and insolvency practitioner fees. These expenses can be substantial and are often higher than those in voluntary liquidations.

Members’ Voluntary Liquidation (MVL): For solvent companies, the liquidation process can be relatively swift, often concluding in a few months—sometimes much sooner—especially if the company’s affairs are straightforward. We can often pay out your profits before the process is complete. 

Creditors’ Voluntary Liquidation (CVL): The timeline varies based on the complexity of the company’s financial situation. While initial procedures, like creditor meetings, occur promptly, finalising the liquidation can take several months or longer.

Compulsory Liquidation: This court-driven process can be lengthy. The timeframe depends on court schedules, the complexity of the company’s affairs, and the efficiency of asset realisation, often extending over a year or more.

Liquidation can be initiated by different parties depending on the type of process:

Members’ Voluntary Liquidation [link to page] (MVL) – Initiated by the company’s directors and shareholders when the business is cash-rich but no longer needed. This allows for an orderly wind-down and tax-efficient distribution of assets.

Creditors’ Voluntary Liquidation (CVL): Started by the company’s directors when the business is insolvent and can’t pay its debts. It allows directors to take proactive steps to close the company while complying with legal obligations.

Compulsory Liquidation: Forced by creditors or other stakeholders through a court petition when a company is unable to pay its debts. This is a court-driven process that removes control from the directors.

Each process follows specific legal requirements and has different implications for directors, shareholders and creditors.

If your company is insolvent but has a viable future, liquidation isn’t the only option. Depending on your situation, you could consider:

Informal Arrangements: Negotiating directly with creditors to extend payment terms or reduce debt, though this lacks legal protection and certainty. 

Company Voluntary Arrangement (CVA): A formal agreement with creditors to repay debts over time while continuing to trade. This can help viable businesses recover.

Administration: A licensed insolvency practitioner takes control of the business, aiming to restructure, sell assets, or find a way to keep it trading. This provides legal protection from creditor action.

Pre-Pack Administration: The company’s assets are sold to a new business, allowing for a fresh start while creditors receive payment from the sale.

The best option depends on the company’s financial position and future viability. As licensed insolvency practitioners, we can advise you on and guide you through all of these solutions.

Winding up your company might be a solution if:

• it’s unable to pay its debts when due.
• creditors are taking legal action or issuing threats.
• cash-flow problems prevent effective trading.
• the company owes unpaid wages, tax bills or supplier invoices.
• there’s no realistic prospect of turning the business around. 

Acting sooner rather than later gives you more control over the process.

Insolvent liquidation, such as a Creditors’ Voluntary Liquidation (CVL), is a formal process to close a company that can’t pay its debts.

Unlike administration or business rescue, which aim to restructure or save the business, liquidation focuses on selling assets to repay creditors before dissolution.

And unlike Compulsory Liquidation, which is court-enforced by creditors, a CVL is initiated by directors, offering more control and ensuring compliance with legal obligations.

1. Appointing a licensed insolvency practitioner: They are legally required to oversee the liquidation. 
2. Selling assets: The insolvency practitioner takes control of the company’s assets, which are valued and sold.
3. Distributing funds: The proceeds from asset sales are distributed to creditors based on their priority. 
4. Dissolving the company: Once all assets are sold and debts are settled as far as possible, the company is officially dissolved and removed from the Companies House register.

Creditors are informed of the liquidation and given the opportunity to submit claims for outstanding debts. The insolvency practitioner is responsible for distributing funds from the liquidated assets according to a strict order of priority: 

1. Secured creditors (e.g., banks with fixed charges)
2. Employees (unpaid wages, holiday pay, etc.)
3. HMRC (outstanding tax liabilities)
4. Floating charge creditors (e.g. lenders with security)
5. Unsecured creditors (e.g., suppliers, contractors).

If the company has assets, they are sold and the proceeds are used to repay creditors in order of priority. If there are no assets, creditors are unlikely to receive any payment. Any remaining company debt is generally written off as part of the liquidation process, meaning the company no longer owes the debt.

Even if your company has no assets, you can still undergo insolvent liquidation using a Creditors’ Voluntary Liquidation (CVL). However, since there are no assets to sell, suppliers are unlikely to receive payment for outstanding liabilities.

Unpaid tax liabilities will also be written off, unless the directors are found personally liable due to misconduct. Employees may be able to apply to the government for wages and redundancy pay.

In most cases, directors are not personally liable for company debts – including in the case of a Bounce Back Loan. However, there are exceptions. If you’ve signed personal guarantees for business loans or other financial agreements, you may be held personally liable for the repayment of those specific debts. Directors can also be held liable for actions like wrongful trading.

Directors have specific legal responsibilities: 

1. Cease trading and preserving assets: Directors must stop trading immediately and protect the company’s assets for the benefit of creditors.
2. Acting in creditors’ best interests: Prioritising creditors over shareholders and avoiding actions that could worsen their financial position.
3. Cooperating with the liquidator: Providing all necessary company records, financial statements, and explanations about the company’s affairs to the appointed liquidator.

Yes, liquidation can be used to address most outstanding debts, including if you can’t repay a Bounce Back Loan (BBL). Directors will need to demonstrate they used the loan properly and acted responsibly. As BBLs did not require personal guarantees, directors should not be personally liable for the debt, provided they acted reasonably.

Employees are typically made redundant when a company enters insolvent liquidation. While employee payments are given priority, there may not be enough funds to cover all entitlements. In such cases, qualifying employees can claim redundancy pay, unpaid wages, and outstanding holiday pay from the Government.

Once the liquidation is complete, the company is officially closed and removed from the Companies House register. At this point, the company no longer exists and all outstanding liabilities of the company are wiped out. As a director, you’re then generally free to start a new business venture.

Once the liquidation is complete, the company ceases to exist. In most cases, directors are free to start a new business, a practice often referred to as “phoenixing“.

However, certain restrictions apply, such as limitations on using the same or a confusingly similar company name. It’s crucial to seek professional advice to ensure compliance with these restrictions.

A licensed insolvency practitioner plays a crucial role in liquidation. They oversee the entire process, ensuring compliance with UK insolvency laws and protecting directors from legal liabilities.

They help assess your options, manage the asset sale, distribute funds to creditors and guide you through your responsibilities as a director, reducing stress and uncertainty.

It’s a legal requirement to use a licensed insolvency practitioner for any liquidation process.

They are needed to navigate the complexities of the process and ensure the company’s closure complies with all legal requirements. Their involvement also mitigates the risk of future disputes with creditors or HMRC and helps to guarantee the whole process runs smoothly and compliantly.

Compulsory Liquidation is a legal process that forces a company to close down when it is unable to pay its debts on time or in full. This process is initiated by creditors who apply to the court for a winding-up petition. If the court grants the petition, the company’s assets are sold, and the proceeds are distributed to creditors to repay the debt as much as possible. The company is then dissolved.

Compulsory Liquidation typically starts when a creditor who is owed £750 or more files a winding-up petition with the court. This usually happens after repeated attempts to recover the debt have failed. The typical steps are: a statutory demand giving the company 21 days to pay, a winding-up petition filed with the court, formal notification of the petition to the company, a notice in The Gazette alerting other creditors, and finally, a court hearing where the judge makes a determination.

Once the court issues a winding-up order and appoints an official receiver, the company’s directors lose control of the business. The official receiver investigates the company’s financial affairs, values and sells company assets, distributes the proceeds to creditors in order of priority, and ultimately dissolves the company.

Directors must cooperate with the receiver’s investigation, and their actions may be scrutinised for any misconduct that contributed to the insolvency.

Yes, you can! The best way to avoid compulsory liquidation is by taking prompt action before your creditors’ do. But even if you’ve already received a winding-up petition, there might be time to avoid Compulsory Liquidation. Even in the case of a winding-up petition from HMRC.

Alternative options include negotiating repayment plans with creditors, initiating a Creditors’ Voluntary Liquidation (CVL), or pursuing a Start Afresh Liquidation, which allows directors to close the insolvent company legally, write off debts, and start over with a clean slate.

You should seek professional advice immediately. Taking swift action can open up alternative solutions and give you more control over the outcome.

Consulting with licensed insolvency experts can help you explore options such as Creditors’ Voluntary Liquidation (CVL), negotiating with creditors or other rescue strategies.

Delaying action could lead to a court-ordered closure, which limits your control.

Solvent liquidation, formally known as Members’ Voluntary Liquidation (MVL), is a process used to close a solvent company, meaning the company can pay all its debts in full and on time, with significant profit left over. Directors initiate MVL voluntarily to distribute the company’s assets to shareholders, often in a tax-efficient manner. The tax relief associated with an MVL means it’s usually preferred over a Company Strike-Off when the company has substantial retained profits or assets.

Currently, distributions to shareholders are typically treated as Capital Gains, which are usually taxed at a lower rate than Income Tax. Many directors also qualify for Business Asset Disposal Relief (BADR), reducing the Capital Gains Tax (CGT) rate.

BADR is currently 10% on eligible assets. However, from April 2025, the tax benefits of BADR will be reduced with the tax rate rising to 14% and again to 18% in April 2026. This means that the tax advantages of using an MVL are diminishing, making it crucial to act before the changes come into effect.

Members’ Voluntary Liquidation (MVL) is often the best choice for companies with significant retained profits or assets over £25,000. But it’s not automatically the correct path for every company in this position. Each company is different and has specific legal and financial circumstances that will need to be considered on a case-by-case basis. It’s crucial to seek professional advice to ensure an MVL is the most suitable solution.

A company must be solvent to qualify for a Members’ Voluntary Liquidation (MVL), meaning it can pay all its debts in full within 12 months of the start of the liquidation process, including any future or contingent debts. The directors must also make a sworn declaration of solvency, confirming they have investigated the company’s affairs and concluded it can pay its debts within that 12-month period. Falsely stating this is against the law.

It’s also advised that your company has at least £25,000 in retained profits. Otherwise the costs generally outweigh the tax benefits. If you have less than this amount, we can still help you wind up your company in a smooth and compliant way.