Company liquidation questions and answers
What types of liquidation are there?
- Members' voluntary liquidation - where the shareholders of a company decide to put it into liquidation, and there are enough assets to pay all the debts of the company, i.e. the company is solvent.
- Creditors' voluntary liquidation - where the shareholders of a company decide to put the company into liquidation, but there are not enough assets to pay all the creditors, i.e. the company is insolvent.
- Compulsory liquidation - where the court makes an order for the company to be wound up (a 'winding-up order') on the petition of an appropriate person. This would usually be a creditor of the company. It can also be the directors of the company. If there is more than one director, all the directors must present the winding-up petition jointly - a single director cannot present a winding-up petition.
Where can I get advice about liquidation?
Before you take any action to put a company into liquidation, you should get advice about the process. You can get advice from your local Citizens Advice Bureau, a solicitor, a qualified accountant, an authorised insolvency practitioner, any reputable financial adviser or a debt advice centre.
What are the alternatives to liquidation?
There are three possibilities:
Informal arrangement - the company could write to all its creditors to try to reach a mutually acceptable agreement. It is advisable to include a timetable of when payments will be made.
Company voluntary arrangement (CVA) - this is a formal version of the arrangement described above. The directors would need to apply to the court, with the help of an authorised insolvency practitioner. If the creditors accept the proposal the insolvency practitioner would supervise the arrangement and pay the creditors in line with the accepted proposals.
Administration - this is a procedure that gives the company some breathing space from any action by creditors.
A company may enter administration to enable:
- the company to survive as a going concern;
- a better result to be achieved than in an immediate winding up;
- the sale of assets for the benefit of secured or preferential creditors.
The procedure is managed by an administrator, who must be an authorised insolvency practitioner. The administrator may be appointed by the court, a floating charge holder or the company or its directors.
How much does it cost to put a company into liquidation?
- £1,165 deposit to the court;
- £220 court fee;
- the cost of advertising the petition in the London Gazette; and
- any costs of instructing a solicitor.
The forms to put a company into compulsory liquidation can be found on this site in ‘Forms’ for England and Wales’.
The costs vary depending on which insolvency practitioner you use and how complicated the liquidation process is.
Who can put a company into compulsory liquidation?
Usually it is a creditor who is owed more than £750 who presents a petition to the court to wind up a company. Less frequently, the company itself, its directors or a shareholder may petition.
Other people who might present a petition are an administrative receiver; an administrator; a supervisor of a voluntary arrangement; the Secretary of State for Business, Innovation and Skills; the Financial Services Authority; the clerk of a magistrates' court, the official receiver or an EU Member State Liquidator.
A winding-up petition can still be presented even if a company is already in administrative receivership or voluntary liquidation.
At which court should I present a winding-up petition?
The winding-up petition should be presented in the High Court, or the District Registry of the High Court that covers the area where the company's trading address or registered office is situated.
If the company's share capital, paid up or credited as paid up, is not more than £120,000, the petition can be presented in the county court that deals with insolvency matters that covers the area where the company's trading address or registered office is situated.
The Court Service website at http://www.justice.gov.uk/about/hmcts/index.htm has a list of courts and district registries, and an index which will show you the geographical area they cover, plus contact details for each of the courts.
How do I present a winding-up petition?
To ensure that all legal requirements are met, you will usually need to instruct a solicitor to deal with issuing a winding-up petition. To present a winding-up petition, you cannot just complete the petition and present it to the court.
Insolvency law requires that before the court can hear the petition, statements of truth must be lodged at court verifying the winding-up petition. The petition must usually be served on the company at its registered office. A certificate of service of the petition must be filed at court at least 5 business days before the hearing. The petition must be advertised in the London Gazette at least 7 business days after the petition is served on the company and at least 7 business days before the hearing. Further statements of truth may be required if, for example, you wish to withdraw the petition.
For full details of how to present a winding-up petition see our booklets:
Dealing with Debt – How to wind up a company that owes you money (DOC, 1.5 Mb)
Dealing with Debt – How to wind up your own company (DOC, 2.3 Mb)
A creditor has presented a petition to the court to wind up my company. Can I appeal against or stop a winding-up order?
There are three ways that winding-up proceedings can be stopped:
- The court can rescind (cancel) a winding-up order. The company (or anyone else) can apply for it to be rescinded if the court did not have all the relevant facts when making the winding-up order. Application should be within five business days of the order being made.
- The company can appeal against a winding-up order. As a result of an appeal, the court can rescind the winding-up order or otherwise vary its decision. An appeal should be within four weeks of the order being made.
- Liquidation proceedings can be 'stayed' (i.e. stopped), permanently or temporarily. A liquidator, the official receiver, a creditor or shareholder can apply for a stay of proceedings. If liquidation proceedings are stayed permanently, the directors usually regain control of the company. An application to stay the liquidation proceedings can be at any time after a winding-up order has been made.
What happens after a company goes into compulsory liquidation?
Usually, the official receiver will be appointed liquidator of the company on the making of a winding-up order. The official receiver has a duty:
as official receiver-
- to ensure that notice of the winding-up order is advertised in the London Gazette. The official receiver might advertise the order in any other way, if they think it is appropriate to do so; and
- to investigate the affairs of the company and to find out the cause of its failure. To do this they obtain information from the directors of the company and from third parties, such as the company's bankers, accountants and solicitors;
as liquidator –
- to collect and sell all assets and pay all creditors.
The official receiver may call a meeting of creditors to appoint an insolvency practitioner as liquidator in their place. If this happens, the official receiver still has a duty to investigate the company's affairs. So, two people may be involved in the liquidation:
- the liquidator, who is responsible for collecting and selling the assets and paying the creditors; and
- the official receiver, who investigates the company's affairs.
The official receiver also has a duty to make a report to the Secretary of State for Business, Innovation and Skills under the Company Directors Disqualification Act 1986, regarding the conduct of the company's directors.
I was a director of a company that has gone into liquidation. How will it affect me?
When a company goes into liquidation the directors no longer have any control over it and the liquidator takes over. You have a duty to co-operate with the liquidator and must identify all assets and liabilities of the company and provide details of its affairs. The liquidator has to make a return under the Company Directors’ Disqualification Act 1986 about the directors’ conduct in relation to the company.
What are my duties as a company director in compulsory liquidation proceedings?
In compulsory liquidation proceedings, the company's directors must:
- give the official receiver information about the company's affairs;
- give any insolvency practitioner who is appointed liquidator information about the company's affairs and attend for interview when reasonably required;
- look after and hand over the company's assets to the liquidator or official receiver; and
- look after and hand over the company’s books, records, bank statements, insurance policies and other papers relating to its assets and debts.
I was a director of a company in liquidation. Can I be held personally liable for any of the company’s debts?
No claim can be made on a director's personal assets in respect of company debts unless:
- You have given a personal guarantee, or provided alternative security, in respect of the company debts; or
- Successful wrongful trading proceedings are started after a company has gone into insolvent liquidation. The liquidator may apply to court for an order that you should contribute to the company's assets. This could happen if, before the winding up began, you knew - or should have concluded - there was no reasonable prospect of avoiding insolvent liquidation, and you failed to take every step to minimise the potential loss to the company's creditors. Such proceedings are know as wrongful trading (section 214 of the Insolvency Act 1986) and are civil proceedings; or
- HM Revenue and Customs make a claim under the tax regulations for your personal liability in respect of unpaid PAYE on their remuneration.
Unless any of the exceptions outlined above apply, a creditor cannot make a claim against you or your assets. If any of the exceptions do apply, you should discuss the matter with the creditor involved and the liquidator.
I am a shareholder in a company that has gone into liquidation. Can I be held liable for any of the company’s debts?
Shareholders are liable, but the liability is limited to the value of their shareholding. So if the shareholding of one person is £100.00 that is the limit of the liability of that shareholder. If the money is fully paid up, the shareholder is deemed to have paid the liability and will not be asked to contribute more by the liquidator. However, where there is uncalled capital, the liquidator can ask the shareholder for the full amount.
I was a director of a company in liquidation. Am I allowed to become a director of another company?
You can act as the director of another company unless you are subject to a disqualification order, have given a disqualification undertaking, are an undischarged bankrupt or are subject to a bankruptcy restrictions order or undertaking.
There are some restrictions that will apply. You cannot be involved in another company or business that has or uses a name which is so similar that it suggests that there is an association with the failed company. This restriction lasts for five years after the winding up and applies:
- if you were a director or shadow director (a person who gives instructions on which the directors of a company are accustomed to act) of the failed company in the 12 months before the winding-up order, and
- to any name used by the failed company in those 12 months.
If you do not comply with this restriction, or if you act as a director without leave of the court while an undischarged bankrupt or while disqualified, you may be held personally liable for the debts of the new or successor company. You may also be committing a criminal offence.
There are certain exceptions as follows:
- If you get the court’s permission; or
- Where a company or business buys the whole, or substantially the whole, of the business of the company in liquidation from the liquidator. If this happens, or is intended to happen, under arrangements made by an administrator, administrative receiver or supervisor of a voluntary arrangement of the insolvent company, the director must use a prescribed form (form 4.73 (DOC, 101 Kb) ) to publish a notice in the London Gazette. You would need to also send it to all creditors known to you, or whose names and addresses can be found by making reasonable enquiries. The notice may be published and given before the completion of the sale arrangements but must be published and given no later than 28 days after completion; orIn an interim period where application is made to the court within seven days of the liquidation and the court gives permission to use the name not later than six weeks from that date; or
- Where the successor company has been known by that name for more than 12 months before the liquidation and has not been a dormant company.
When will liquidation end?
How long liquidation takes will depend on the individual company, e.g. the nature of its assets and the complexity of the liquidation. Once the process has been completed the company will be dissolved and cease to exist.
What if I can’t afford to put my company into liquidation?
If you or the company cannot afford the costs of liquidation there are two options:
The company could simply stop trading and not enter into insolvency proceedings. It would then be for one of the creditors of the company to decide whether they petition for the winding up of the company.
The company could stop trading and then the directors apply for voluntary dissolution. A private company may apply to the Registrar of Companies to be struck off the Register under section 1004 and 1005 of the Companies Act 2006. This is not an alternative to formal insolvency proceedings, and creditors may prevent the striking off. Even if the company is struck off and dissolved, creditors and others could apply for the company to be restored to the Register.
How do I apply to have my company struck off the Register?
You can make an application if the company has not traded in the last three months. You must apply to the Registrar of Companies and send a £10 fee. Copies of the application must be sent to the company’s shareholders, creditors, employees, managers or trustees of any company pension fund and any directors who have not signed the application form. This enables them to object.
For full details see the Companies House leaflet GP4 ‘Strike-off, Dissolution and Restoration’, which is available free of charge. The quickest way to get a copy is through their website at www.companieshouse.gov.uk or by telephoning 0303 1234 500. Before you take any action, you may wish to seek your own advice.
Where can I get more information?
For more details on company liquidation see our leaflets:
Dealing with Debt – How to wind up a company that owes you money (DOC, 1.5 Mb)
Dealing with Debt – How to wind up your own company (DOC, 2.3 Mb)
Re-use of a company name after liquidation (DOC, 2.1 Mb)
A Guide for Creditors (PDF, 119 Kb)
A Guide for Directors (DOC, 2.3 Mb)
You may also find it helpful to read the publication GP08 'Liquidation and Insolvency', issued by Companies House free of charge. It gives more details about alternative insolvency proceedings and liquidation. The quickest way to get a copy is through their website at: www.companieshouse.gov.uk or by telephoning 0303 1234 500.
If you still have unanswered questions about company liquidation, you can contact The Insolvency Enquiry Line on 0845 602 9848 – between 8.00am and 5.00pm Monday – Friday except bank holidays; or email: Insolvency.EnquiryLine@insolvency.gsi.gov.uk