Liquidation is the process of selling a company’s assets, using the proceeds to settle debts, and removing the company from the Companies House register. Once complete, the company no longer exists as a legal entity.
The process you’ll follow depends entirely on whether your company is insolvent or solvent:
Insolvent liquidation – when the business cannot pay its debts in full
Solvent liquidation – when all debts can be paid in full within 12 months
Ultimately, the company liquidation process offers a formal, legal route to close your company. Done correctly it resolves outstanding debts and stops creditor pressure if you’re facing insolvency, so you can draw a line under your company’s affairs.
The insolvent company liquidation process
An insolvent company can take one of two liquidation routes:
Creditors’ Voluntary Liquidation (CVL)
A CVL is started by the directors when they recognise the company cannot pay its debts. You appoint a licensed insolvency practitioner to act as liquidator. They take control of the company, sell assets, deal with creditors, and handle all legal requirements. Choosing a Creditors’ Voluntary Liquidation over waiting for creditors to act usually means more control, less reputational damage and a smoother process.
The typical steps in a CVL are these:
- Meet with a licensed IP to confirm insolvency and discuss options
- Hold a board meeting to recommend liquidation
- Shareholders vote to wind up the company
- Creditors confirm the liquidator’s appointment
- The liquidator sells assets and distributes the proceeds to creditors in order of priority
- The company is dissolved
Compulsory Liquidation
This is forced by a creditor via a winding-up petition to the court. If granted, the court orders liquidation and appoints the Official Receiver as liquidator. In a Compulsory Liquidation directors lose all control over the initiation of the company liquidation process.
Director duties in insolvent liquidation
Once you know, or should reasonably know, that your company is insolvent, your legal duty shifts from shareholders to creditors. This means:
- Stopping dividend payments
- Avoiding asset sales below market value
- Not taking on new credit you know the business cannot repay
- Keeping accurate financial records
- Seeking professional advice immediately
Failing to meet the duties of a director risks accusations of wrongful trading and could lead to you being personally liable for company debts.
The solvent company liquidation process
If your company can pay all of its debts, interest and statutory costs in full within 12 months, it is solvent. And if it has cash reserves of over £25,000, the most tax-efficient way to close it could be a Members’ Voluntary Liquidation (MVL).
An MVL isn’t an insolvency procedure. But it is a formal liquidation process handled by a licensed insolvency practitioner, used to close a solvent company in a tax-efficient and compliant way.
Why directors choose MVL
- If you qualify, it converts retained profits into capital when disposed of, instead of income
- Many directors also qualify for Business Asset Disposal Relief (BADR)
- It avoids the risks that come with closing the company yourself, such as forgotten debts
- It provides a clean, statutory closure
How an MVL works
- Directors prepare and sign a Declaration of Solvency
- Shareholders pass a resolution to wind up the company and appoint a liquidator
- The liquidator pays any outstanding debts, secures tax clearance and distributes the remaining funds to shareholders
- The company is dissolved once all matters are finalised
In straightforward cases, the first shareholder distribution can be made within weeks. Full closure typically takes 6–12 months, depending on HMRC clearance times.
How long does the company liquidation process take?
A straightforward CVL or MVL can take around six to 12 months to fully conclude. Complex cases, such as those involving property sales, disputes or significant investigations, can take quite a bit longer. But once the process starts, your insolvency practitioner takes charge, which eases the pressure on you.
Costs involved in the company liquidation process
If you’ve had a statutory demand, a winding-up petition or a letter from HMRC warning you personally, Liquidation costs vary with complexity. For a small company CVL, fees typically range from £3,000 to £7,000 plus VAT. MVLs are often charged on a fixed-fee basis. In both cases, costs are usually paid from company assets, though in asset-poor insolvent companies, directors sometimes fund the process personally to avoid compulsory liquidation.
Need advice on the company liquidation process?
For directors of insolvent companies, speaking to a licensed insolvency practitioner early can mean the difference between choosing a Creditors’ Voluntary Liquidation and being forced into Compulsory Liquidation by creditors. It could also open the door to alternative rescue options, such as a Company Voluntary Arrangement, before liquidation becomes inevitable.
For directors of cash-rich, solvent companies, early planning allows you to take advantage of a Members’ Voluntary Liquidation at the most tax-efficient time, ensuring you don’t miss eligibility for reliefs such as Business Asset Disposal Relief.
If you’re facing mounting debts, or if you’re solvent and considering an MVL to close your business tax-efficiently, our licensed insolvency practitioners will give you clear, confidential advice tailored to your situation, so you can act decisively and move forward with confidence.
