How do I liquidate my company?

A creditors' voluntary liquidation (CVL) is the formal procedure in which the directors of an insolvent limited company choose to close it and a licensed insolvency practitioner is appointed as liquidator to sell the assets, pay creditors in the statutory order and end the company. It is the most common form of liquidation in England and Wales. Talk to a licensed insolvency practitioner (IP) before you decide anything, because the steps you take now affect your creditors and you.

When should a director liquidate a limited company?

A director should consider liquidating a limited company when it is insolvent, meaning it cannot pay its debts as they fall due or its liabilities exceed its assets, and there is no realistic way to turn the business around. From that point the law expects you to act in the interests of the creditors as a whole. Stop taking on new credit, look after the company's assets, and avoid paying one creditor ahead of the others until you have taken advice.

If the business itself is still sound, liquidation may not be the answer. A company voluntary arrangement or an administration can sometimes save it, and our guide to company rescue options explains when each one fits.

What are the steps to liquidate an insolvent company?

Liquidating an insolvent company through a creditors' voluntary liquidation follows five steps: a board decision, a statement of affairs, a shareholders' resolution, a creditors' decision on the liquidator, and the liquidator's work through to dissolution.

1. The board decides. The directors agree that the company is insolvent and should stop trading, and choose the licensed insolvency practitioner they want to nominate as liquidator.
2. A statement of affairs is prepared. With the IP's help, the directors set out what the company owns and what it owes to each creditor. Creditors receive it before they are asked to decide on the liquidator.
3. The shareholders pass a resolution. The shareholders pass a special resolution, which needs a 75% majority, to wind the company up, either at a general meeting or as a written resolution.
4. The creditors decide on the liquidator. Within 14 days of the shareholders' resolution, creditors are asked to approve the nominated liquidator through a decision procedure, usually deemed consent or a virtual meeting. A majority of creditors by value can choose a different liquidator instead.
5. The liquidator takes over. Once appointed, the liquidator takes control of the company and carries out the work described below. The company is dissolved about three months after the liquidator's final account is registered at Companies House.

Since April 2017 there has been no need for a physical creditors' meeting. One is only held if enough creditors ask for it: at least 10% of the creditors by value or by number, or 10 individual creditors.

How much does it cost to liquidate a company?

Liquidating a company through a CVL typically costs from around £4,000 to £7,000 plus VAT for a straightforward small company, depending on the number of creditors, the assets to realise and how complex the case is. These are indicative ranges to confirm at a free consultation, and our full guide to a creditors' voluntary liquidation breaks the costs down.

What does a liquidator do once appointed?

A liquidator takes control of the company once appointed and works through a set of statutory duties, from selling the assets to reporting on how the directors ran the business.

• Safeguarding and selling the company's assets.
• Dealing with employee claims, including redundancy pay through the Redundancy Payments Service.
• Keeping creditors informed about the progress of the liquidation and any dividend.
• Investigating the company's affairs and the conduct of the directors.
• Reporting on the directors' conduct to the Insolvency Service, normally within three months.
• Agreeing creditors' claims and, where funds allow, paying a dividend in the statutory order.

What happens to directors when a company is liquidated?

When a company is liquidated the directors' powers end, and the liquidator reviews how the company was run in the period before it failed. Most directors who acted responsibly face no further action and can go on to run another company. The liquidator will pursue an overdrawn director's loan account, payments that favoured one creditor over the others, and trading on after the company should have stopped.

Two other points catch directors out. You cannot reuse the liquidated company's name, or one very like it, for five years unless a legal exception applies. And if you were also an employee of the company, you may be able to claim redundancy pay as a director.

Why does acting early matter when a company is insolvent?

Acting early matters because every week an insolvent company keeps trading can add to what its creditors lose and to the personal risk its directors take on. Early advice can open a rescue that is no longer possible a few months later. Where it cannot, it stops you making the creditors' position worse.

If you think a CVL may be right for your company, request a callback or call us on 01625 540 744 for a free, confidential conversation with a licensed insolvency practitioner.