A guide to liquidation

What happens when a company goes into liquidation? And what is the role of a liquidator? David Kirk, a chartered accountant and licensed Insolvency Practitioner at Kirks, explains the process when a company enters liquidation.

What happens when a company goes into liquidation?

If a company enters liquidation, it means that it will stop trading immediately and have a Licensed Insolvency Practitioner (called a liquidator) appointed to manage its affairs. A liquidator’s main task will be to sell the company’s assets to repay as much as possible to the creditors.

There are three types of liquidation:

Creditors’ voluntary liquidation (CVL) – This is where a company cannot pay its debts and directors decide to liquidate the company, involving creditors when they liquidate it. They will need a Licensed Insolvency Practitioner to act as the liquidator.
Compulsory liquidation – This is where a company cannot pay its debts and is put into liquidation at a Court hearing. An unpaid creditor, owed more than £5,000, can issue a winding up petition for this type of liquidation. This winding up petition can be defended if you have a valid dispute or counterclaim.
Members’ voluntary liquidation (MVL) – This is where a company is solvent, but its directors want to close the company. This means that all creditors will be paid in full and there will be a balance of funds for the shareholders. They will need a Licensed Insolvency Practitioner to act as the liquidator.

Once the liquidator is appointed, the directors’ powers cease, and they cannot access the company’s bank account or run the company. Sometimes, a liquidator will ask the former directors for help with various matters. Directors have a legal duty to cooperate and assist the liquidator in their duties without being paid. Failure to cooperate may mean a director is prosecuted by the Insolvency Service.

How long does it take to go into liquidation?

There are three stages and meetings to get into voluntary liquidation. The quickest possible time to do this is within eight days. However, the average time is about two plus weeks:

1. The first stage is that a majority of the board of directors agree that liquidation is the right option. The directors can call a meeting without any minimum notice period to decide this. All directors should be invited to the meeting with warning of the purpose of the meeting.

2. The second stage is that shareholders must be given 14 days’ clear notice of a meeting to pass a resolution to liquidate. This notice period can be reduced to immediately if 90 per cent of the shareholders consent to short notice.

3. The third stage is that creditors must have at least seven clear days’ notice of the decision to liquidate. The creditors decision can be obtained by deemed consent (so in fact no creditors meeting at all) or by a virtual meeting. A physical creditors meeting is not held unless 10 per cent of creditors request one. This 10 per cent rule means either:

10 per cent of creditors by total value or
10 per cent of the number of total creditors or
at least 10 creditors

Once the deemed consent date has passed, the company is then in liquidation. If there was a creditor’s meeting, then a count would have been taken of creditors voting to pass the liquidation resolution and agreeing to whom is the liquidator.

What is the role of a liquidator?

The liquidator is an independent person appointed to manage the finances of a limited company or a partnership. They must be professionally qualified and a Licensed Insolvency Practitioner.

They have a duty to collect in the assets and pay the creditors. In a solvent liquidation they will also pay out the shareholders.

Their role is governed by the Insolvency Act 1986, The Insolvency (England and Wales) Rules 2016, Statements of Insolvency Practice (SIPs) and the rules of their registered professional bodies (RPBs), and their powers include:

dealing with employees
realising assets for the benefit of the liquidation estate
liaising with creditors
making a return to the members and/or creditors, where appropriate

How long will the liquidation last?

There is no legal time limit on how long a liquidation will last. A typical liquidation takes a year to complete but can go on for longer. It depends on what assets are to be realised, and how long it takes to agree creditors’ claims.

Can you reuse a company name after insolvent liquidation?

If a company goes into insolvent liquidation, then the directors cannot use the same or similar trading name for at least five years. If they breach this restriction, it can be a criminal offence and they can be held personally liable for the new company debts.

There are three exceptions to re-using the name and these are:

If you had another company that has already been trading and using the same or similar name for the last 12 months.
If you buy the assets and business from the liquidator and then notify all creditors within 28 days of the purchase including placing a notice in The Gazette.
If you have applied to Court to use it and been granted consent.

More detail can be found in Section 216 of the Insolvency Act 1986 about the re-use of an insolvent company name.

Where can I see insolvency notices in The Gazette?

You can view all corporate and personal insolvency notices on The Gazette website.

The Gazette also provides a data service which gives access to official intelligence on all UK businesses, corporate and personal insolvencies. Benefits of The Gazette’s data service include:

Bespoke reports - tailored around your specific business
Geo-targeted editions - available for specific geographical targeting (National, London, Belfast, Edinburgh)
Custom filters - specific custom attributes (company number, notice type, key terms)
Data at regular intervals - delivered at a rate to match your business needs (daily, weekly, monthly)

For more information on The Gazette’s data service, contact the team on 01603 985949 or email data@thegazette.co.uk.

About the author

David Kirk is a chartered accountant and licensed Insolvency Practitioner at south west-based insolvency specialist firm Kirks.

See also

A guide to compulsory liquidation

A guide to creditors' voluntary liquidation (CVL)

A guide to members' voluntary liquidation (MVL)

What is the role of a liquidator?

Who gets paid first when a company goes into liquidation?

Find out more

Guide to liquidation (winding up) and re-using a company name (GOV.UK)

Insolvency Act 1986 (Legislation)