How to Liquidate a Company

There has been a dramatic increase in business liquidations across the UK, with the latest government statistics showing 2,361 registered company insolvencies in England and Wales in June 2024 alone. That’s a 17% increase from the same month in the previous year (2,016 in June 2023).

Out of those business liquidations, creditors’ voluntary liquidations (CVLs) account for 79% of them. Compulsory liquidations and company voluntary arrangements (CVAs) have also seen increases by up to 19% and 64% compared to previous years respectively. The sector that has experienced the highest rise in insolvencies is the accommodation and food service sector.

Considering the changes and disruptions affecting the global economy, supply chain issues, inflation, and changing consumer behaviour, businesses owners might want to know how do you liquidate a company?

While nobody builds a business with plans to liquidate, having knowledge of the process of liquidation is beneficial in case you’re faced with sudden and unexpected challenges in the economy.

In this comprehensive guide, we’ll explore everything you need to know about how to liquidate a company and offer some business liquidation advice and stats backed by the latest official data and real-world examples.

Understanding Company Liquidation

Types of Company Liquidation

The UK’s insolvency guidelines allows for three distinct types of liquidations, each designed to address specific financial circumstances and stakeholder needs.

The most common is creditors’ voluntary liquidation (CVL). As noted, recent data shows that it accounted for 79% of all insolvency cases in 2024. In a CVL, the directors of a company initiate the process of liquidation upon recognising their company’s inability to service debts. This requires both shareholder consent and the appointment of a licensed insolvency practitioner (Companies House, 2024).

The second type of company liquidation process is members’ voluntary liquidation (MVL). It serves as a strategic tool for solvent companies, offering shareholders a tax-efficient mechanism to extract assets and wind down operations, as long as directors formally declare the company’s solvency.

Finally, the most severe option is compulsory liquidation. This typically takes place when creditors, having exhausted other recovery methods, successfully petition the court to force the company’s closure. Recent statistics indicate that while this approach only represents a fraction of cases, it has seen a 19% increase year-over-year, suggesting creditors are becoming more active in debt recovery.

The key distinction between these three types of liquidations comes down to control and circumstance: CVLs offer directors a way to responsibly manage insolvency, MVLs provide solvent companies with a tax-efficient exit strategy, while compulsory liquidation forces closure when all other options are exhausted.

Who Can Initiate Liquidation

Since company liquidation is often a last resort, it stands to reason why the authority to initiate company liquidation in the UK is not limited to a single party but rather distributed among several key stakeholders. So who can put a company into liquidation?

The primary power to commence voluntary liquidation proceedings are held by company directors and shareholders. It’s often exercised when they recognise the business is no longer viable. However, creditors aren’t powerless. They also wield influence in starting this process. Under the Insolvency Act 1986, any creditor owed £750 or more can petition the court for compulsory liquidation.

Creditors bring their claims to court and leave it to the judge to make the ruling. The court maintains the final authority to convert an existing administration into liquidation when it becomes clear that rescue attempts have failed, a process that has become increasingly common in the post-pandemic business environment (Harrison & Smith, 2023).

How to Apply for Liquidation

Now that you know who can liquidate a company, you might be wondering how do I liquidate my company and how to apply for company liquidation in the UK.

Directors of businesses asking how to apply for liquidation of a company must first determine whether to pursue voluntary or compulsory liquidation. For voluntary liquidation, directors appoint a licensed insolvency practitioner and pass a resolution for winding up. In the case of a members’ voluntary liquidation (MVL), directors must sign a Declaration of Solvency.

For creditors’ voluntary liquidation (CVL), directors call a shareholders’ meeting to pass the winding-up resolution, then notify creditors. For compulsory liquidation, directors must file a winding-up petition with the court, along with the shareholders’ winding-up resolution. The petition is submitted to the High Court if the company’s paid-up share capital is £120,000 or more, or to the nearest court dealing with bankruptcy if it’s less. The process involves fees of £2,600 for petition submission and £280 for the court hearing.

How Do You Liquidate a Company

It’s important to bear in mind that the steps designed in the liquidation process ensures it proceeds legally and effectively to be fair to all parties and not to punish anyone. So, how do companies go into liquidation? First, the company directors must engage in comprehensive consultation with a licensed insolvency practitioner. This step is particularly important as choosing the right consultant can bring significantly different results and influences the eventual outcome of the liquidation process.

Following the initial consultation, the practitioner conducts a thorough assessment of the company’s financial position, examining everything from current assets and liabilities to projected cash flows – a process that typically takes between two to four weeks (Insolvency Practitioners Association, 2024). Based on this detailed financial analysis, directors can make an informed decision about the most appropriate type of business liquidation for their circumstances.

The process then moves into a documentation phase, where the insolvency practitioner prepares the required paperwork, including the statement of affairs and director conduct reports required under the Insolvency Act 1986.

The final stage of liquidating a limited company involves organising formal meetings with stakeholders, including creditors and shareholders.

Asset Liquidation Procedure

When talking about how to liquidate a company, people often forget to ask, what happens when you liquidate a company? The ‘what’ is equally important to the ‘how’, because putting a company into liquidation is a critical phase in the company closure process that’s carefully orchestrated to maximise returns for creditors and ensures as much debt recovery as possible.

Here’s what happens when you liquidate a company.

After the professional valuation of company assets, which includes everything from machinery and equipment to intellectual property and real estate, the insolvency practitioner takes immediate steps to secure and insure valuable assets. This is a crucial protective measure that the Insolvency Practitioners Association (2024) identifies as fundamental to preserving asset value during the liquidation process.

Once appraised and insured, the marketing phase commences. Assets are advertised to be sold to the highest bidder.

When selling, the insolvency practitioner, guided by their statutory duties, must balance getting the best possible price against timely asset disposal. Once buyers for the assets are secured, the focus shifts to completing sales transactions with full legal compliance.

After Liquidation: Final Steps

Once a liquidation process in the UK is complete and assets are being distributed to creditors, the practitioner must document every distribution, as errors at this stage can lead to personal liability and unnecessary legal challenges (IPA, 2024).

Following distribution, the insolvency practitioner prepares a comprehensive final account. A process that the Journal of Corporate Insolvency reports has become increasingly complex considering the new regulatory requirements introduced in 2023.

These accounts must provide detailed narratives of the liquidation processes, including all actions taken, assets realised, and distributions made. Once finalised, the practitioner proceeds with the dissolution filing.

The final step involves the formal removal of the company from the Companies House register, which recent data suggests takes an average of 3-4 months from the filing of dissolution papers, marking the company’s legal cessation (Companies House, 2024).

Role of the Insolvency Practitioner

The insolvency practitioner stands as a pivotal figure in the liquidation process, wielding significant statutory powers and responsibilities under UK insolvency law.

Upon appointment, the practitioner immediately assumes control of all company assets. A fundamental aspect of their role involves conducting thorough investigations into company affairs, examining historical transactions and director conduct to identify any potential misconduct or recoverable assets.

When liquidating a company, insolvency practitioners support communication between all parties as another crucial dimension of their responsibilities, as practitioners must maintain regular dialogue with creditors while balancing often competing interests. The practitioner must also navigate a complex web of legal requirements, ensuring compliance with both the Insolvency Act 1986 and more recent regulations, including the Corporate Insolvency and Governance Act 2020, as overseeing the liquidation and distribution of assets requires careful adherence to the statutory order of priority (Wilson & Cooper, 2024).

The final phase of their role involves managing the dissolution process. They prepare detailed final reports and ensuring all statutory obligations are met before the company is finally struck off the register.

Financial and Legal Implications

When a company enters liquidation, the immediate financial and legal implications are riddled with substantial upfront costs.

Insolvency practitioner fees typically form the largest expense. The exact amount depends entirely on the size of the company and complexity of the case but the average for small to medium-sized companies can range anywhere from £4,000 to £15,000 (Wilson & Roberts, 2024).

These core fees are supplemented by a range of additional expenses including company liquidation advice, legal documentation preparation, professional asset valuations, ongoing administrative charges, and various government fees.

Creditors must navigate a strictly enforced priority order for payment. If all goes accordingly, secured creditors have been noted to typically recover 60-80% of their debt (although it must be mentioned, these figures depend entirely on every individual case) while unsecured creditors often receive much less. Since the claims process can be lengthy with most liquidations taking between 12-18 months to complete the distribution timeline, many creditors end up writing off significant portions of the debt owed to them as business losses.

The long-term implications of putting a company into liquidation extend well beyond the immediate financial impact. Company directors may find their credit history impacted for years, limiting their ability to establish new businesses or secure personal finance.

Since the company assets are disposed of, decisions made during the liquidation process cannot be reversed. Most of all, the breakdown of stakeholder relationships can have lasting professional implications within their industry sector potentially affecting future business relationships.

These consequences highlight why liquidation should be viewed not just as a financial process, but as a significant business and personal watershed that requires careful consideration of all available alternatives.

An example of company liquidation is BuildTech Solutions Ltd. Incorporated in May 2009, it entered voluntary liquidation in February 2011, less than two years after its incorporation.

The case of BuildTech Solutions Ltd provides a lesson into the dynamics of company liquidation, highlighting how quickly a business can falter and also the timeline and the complexities involved in the liquidation process. Let’s look at this more comprehensively.

BuildTech Solutions Ltd.’s short lifespan underscores the vulnerability of new businesses in today’s market. Its failure may have resulted as one or a combination of various factors including:

• Market volatility: Construction and related industries are often subject to economic fluctuations.
• Cash flow issues: New businesses frequently struggle with maintaining adequate cash flow.
• Management changes: The appointment of a new director and termination of previous leadership just before liquidation suggests internal turmoil within management.

While there’s no definitive answer to why the company undergo liquidation, the key takeaway is that businesses at any stage should maintain robust financial monitoring, seek professional advice early when challenges arise, and have contingency plans in place before problems become insurmountable. You can read the full details of the liquidation found here.

Financial difficulties can arise from various factors, such as market changes, economic downturns, or internal management issues. The decision to liquidate a company is never taken lightly, as it involves closing down the business, selling off assets, and potentially impacting employees and creditors.

When you find yourself contemplating liquidation, it’s often a challenging and emotionally charged time, your best option is seeking professional guidance and exploring all available options.

This is where Irwin Insolvency is a valuable partner for businesses facing financial challenges. With years of experience, Irwin Insolvency has established itself as a trusted name in the field of corporate recovery and insolvency. Our comprehensive services include business insolvency, personal insolvency, bankruptcy, and business recovery.

We pride ourselves on offering personalised approaches when handling insolvency, especially liquidation of company. We understand the sensitive nature of these situations and use an empathetic approach to help our clients feel more at ease and supported during this stressful process. We’ll help you handle all necessary documentation, manage communication with creditors, ensure legal compliance throughout the process, and work towards efficient completion of the liquidation or recovery process.

Our wide range of services ensures we can provide tailored solutions to meet the specific needs of each client, whether small business owners or large corporations.

If you’re considering liquidation, Irwin Insolvency’s team of licensed insolvency practitioners is ready to help. We operate and provide nationwide coverage to help customers all over the UK. Get in touch with us for a free consultation and let us assess your situation.

References:

Government Agency Report: Current: Companies House. (2024). Monthly insolvency statistics – June 2024. GOV.UK. Should be: Companies House. (2024). Monthly insolvency statistics – June 2024. GOV.UK. https://www.gov.uk/government/statistics/monthly-insolvency-statistics

Journal Article: Current: Harrison, P., & Smith, J. (2023). The evolution of administration to liquidation conversion. Corporate Law Review, 41(4), 223-241.

GOV.UK. (n.d.). Liquidate your limited company: Apply directly to the court. https://www.gov.uk/liquidate-your-company/apply-to-court

Insolvency Practitioners Association. (2024). Best practice guide: Initial stages of liquidation [Practice guide]. https://www.insolvency-practitioners.org.uk/publications

Office for National Statistics – Company incorporations, voluntary dissolutions and compulsory dissolution. https://www.ons.gov.uk/economy/economicoutputandproductivity/output/datasets/companyincorporationsandvoluntarydissolutions

Journal Article: Current: Wilson, C., & Cooper, A. (2024). Regulatory compliance in corporate insolvency. International Insolvency Review, 29(1), 67-84.