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Types of Liquidation

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Liquidation is an option when your company is insolvent due to cash flow difficulties, on a balance sheet basis or you have creditors threatening to take action against it. You may be faced with either Compulsory Liquidation or Creditors Voluntary Liquidation (CVL), Wilson Field can help in these stressful times.

The processes available to limited companies

Whilst liquidation fundamentally involves the realisation of company assets, there are different processes available depending on the situation in which the company finds itself. These processes are:

Creditors’ Voluntary Liquidation (CVL)

If the company is insolvent, can no longer pay its liabilities and is struggling to continue trading, it could enter into a CVL. This process is instigated by the directors of the company and enables the insolvent position to be dealt with very quickly.

Find out more information on CVL on our dedicated webpage.


Member’s Voluntary Liquidation (MVL)

This occurs when a company is solvent but circumstances have come about where the directors want to close the company down in an orderly and professional manner. This could occur as a result of retirement of the directors/shareholders or a director plans to close the family business with no one to take over.

Find out more information on MVL on our dedicated webpage.


Compulsory Liquidation

In simple terms this is the corporate equivalent of bankruptcy and it involves a court process. Whilst this can be instigated by directors, it is primarily creditors that petition for a compulsory winding up order.

Find out more information on our compulsory liquidation page.

The benefits

Closing down your company using one of the above options can benefit you as director by:

  • Preventing the situation of the company’s creditor deteriorating further. By acting promptly, this also minimises the likelihood of wrongful trading action being brought against the director(s) personally. Enabling employees (including directors) to claim any redundancy pay from a government fund.
  • Allowing creditors to submit their claims in an orderly way.
  • Quickly removing creditor pressure.
  • Stopping further legal action.
  • Realising company assets to achieve the best possible return to creditors. In some situations it may give the directors/shareholders the ability to purchase the assets at fair value, therefore allowing an element of the business to live on.
  • Usually there is no fee to pay as the liquidator’s fees are paid out of the realisations of the company assets.
  • Providing a clean break for directors to move on from the company.

What does a liquidator do?

The liquidator is a licensed insolvency practitioner (IP) who will fulfil all legal requirements and will facilitate or “run” the liquidation once he/she has been appointed. The duties they will perform include but are not limited to:

  • Completing all legal requirements to close the company
  • Realising (i.e. converting to cash) any company-owned assets
  • Distributing the proceeds of assets to creditors.
  • Making staff redundant.
  • Investigating the conduct of the directors for the three years up to the closure of the company.

As mentioned above, company assets are sold after they have been independently valued by a qualified valuer/auctioneer. It is possible for the director to buy the assets back as long as it can be proven that they have been valued and sold a fair marketable price. The liquidator may choose to advertise and market them to the public to justify to creditors that no higher offers have been received.

Once the assets have been sold the creditors’ claims will be worked out, and they will be paid from the proceeds of the assets – referred to as “paying a dividend” to creditors.

What is the process for liquidating my company?

If your company is insolvent and is no longer viable, immediate action will need to be taken to deal with the company’s insolvent position. Dealing with financial problems quickly helps to minimise creditor exposure and the risk of wrongful trading accusations against directors. The general process of liquidating a company is:

Contact us without delay
At Wilson Field, we will discuss your company’s current situation to find the best option for your business and outline the various alternatives and how to proceed.

When you first get in contact with us, we will consider all options for your business. These may include CVL to company voluntary arrangement (CVA), refinancing to administration so that we find the best solution for your business. We will advise you how these options will impact your business, the general time frames and the costs of the procedures.

Collation of information
Once instructed to act, we will work with you to gather the necessary information that will help us to conduct the liquidation. The information required will include the following:

  • Books and records.
  • Details of any company assets, including cash and book debts. These may include intangible assets such as web sites and databases.
  • Current list of creditors and other liabilities with details of how much is owed, names and addresses and any reference numbers. As well as actual debts, consideration will also be given to contingent debts which may arise under warranties and guarantees.
Creditors informed
Creditors are informed of the company’s position and formal notification is sent to them. The event is also advertised in the London Gazette.

Historically, a physical meeting of creditors was held, where creditors decided whether to accept the liquidator nominated by the company. They also were presented with a statement of affairs presented by the directors.

Since April 2017, the requirement for a physical meeting has been removed and indeed cannot be called unless at the explicit request by 10% by value of creditors or 10% in total number of creditors or 10 individual creditors.

Instead of attending physical meetings, decisions will be reached by creditors using virtual meetings, electronic voting or by correspondence. Creditors can also appoint a third party to vote on their behalf; this is referred to as proxy voting.

Asset valuation and sale of assets
Assets will be valued in order to ascertain a value and once received assets will go to auction or to an un-associated party and achieve the best price. Alternatively, you may have the option to buy the assets back as long as it can be demonstrated that selling the assets back to your is in the creditor’s best interests. The asset sale may have been pre-agreed and this is known as a pre-pack liquidation.
Settlement of creditors’ claims
The outcome of the sale is relayed to the creditors and if there is any value left, payments are made for settlement of their claims.

Dos & don’ts

  • Do maintain a firm understanding of the company’s position at any given moment
  • Do collect all financial information together ready for the liquidator
  • Do hold regular meetings and take minutes of any notable decisions made
  • Do seek professional insolvency advice
  • Do be completely honest with all of your staff and contacts
  • Do build a picture of the company’s liabilities and assets and maintain a good knowledge of the current value of those assets.
  • Don’t take any client or customer deposits if you are aware there is a reasonable chance you cannot complete
  • Don’t ignore any problems in the hope that they will fade over time
  • Don’t give payment to any creditor in preference over another as they are all to be treated equally
  • Don’t ignore any legal proceedings that someone may begin against you
  • Don’t make any promises to creditors or anyone else that you cannot keep.


Some common questions asked by directors:

Can you liquidate a solvent company?

Yes, solvent companies who are currently in a stable financial position but wish to release equity tied up in assets in a tax efficient manor can do so via a MVL.

Can I liquidate my own company?

No – it is a legal requirement that an IP will need to be instructed in order to liquidate a company.

What do directors have to do?

Directors must provide all of the company’s books and records including a list of assets and liabilities. A director of the company must be party to any virtual or physical creditors meeting (if called) and will act as chairman of the creditor’s meeting. In reality, the IP will give guidance and will more than likely ‘run’ the meeting.

When an IP is appointed and the company is officially ‘in liquidation’, the liquidator will request information. The directors need to comply; it is an offence not to do so.

Can I be a director of another company if my company is liquidated?

It is possible for directors to become a director of another company, but only if they have acted correctly and not been disqualified. However, if you decide to trade under the same or similar name you will need to take legal advice.

Wilson Field offers a fast and efficient service with nationwide coverage from a network of regional offices so a free consultation can be arranged at a time and location most convenient to you.

If you think liquidation may be the way forward, get in touch today to arrange a free confidential consultation with no obligation.

Authored by Nick Wilson

Nick Wilson

Managing Director

Beverley Horton Christopher Callaghan Stephen Hall

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