Liquidation involves selling a business’ assets and using the proceeds to repay debts as far as possible. The company is then permanently closed down, but there are two forms of insolvent liquidation to consider:
So why would you want to place your own company into liquidation?
Choosing voluntary liquidation over enforced liquidation
When you wait for a creditor to force your company into liquidation you risk increasing the financial losses of creditors as a whole. This directly contravenes insolvency laws in the UK and is a breach of your obligations as a company director.
Creditors’ Voluntary Liquidation does incur professional fees, and given that the business is insolvent it may appear counter-intuitive to incur further costs in this way. It’s possible to mitigate this issue, however, as you and other directors may be eligible to claim director redundancy pay and use it to cover the costs of the process.
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How to know when it’s time to liquidate your company
There are three tests for insolvency that you need to be aware of:
Cash flow test: you can’t pay the bills as they fall due
Balance sheet test: the company’s liabilities (including contingent liabilities, such as pending claims against the company) are greater than its assets
Legal action test: creditors have taken action against you through the courts, such as a Statutory Demand or a winding up petition
It’s advisable to formally establish whether the company is solvent or insolvent. Seeking advice from an insolvency expert can help you avoid accusations of misconduct further down the line – failing to cease trade when insolvent, for example.
So what are some of the warning signs of insolvency that could prepare you for potential liquidation, and when might that prospect become a reality?
Concerned about National Living Wage and NI increases?
With the rates of both National Living Wage and employer National Insurance Contributions increasing in recent years, this additional cost of employing staff has added more pressure onto already squeezed cash flows. If you are worried about the impact this is having on your company's finances, talk to the experts at UK Liquidators. As licensed insolvency practitioners we can explain your options and help you plot a way forward. Call today on 0808 253 9878.
What are the warning signs that you might need to liquidate?
These are just some of the signs that can lead to insolvency and ultimately require you to liquidate your company:
Lack of cash
Additional pressure from creditors and suppliers
Being unable to collect your own debts effectively
Problems paying staff wages,
Outstanding tax liabilities
Increasingly high levels of bad debt
Lack of reliable management information
Inability to secure new lines of credit
Legal action from creditors
Visits from bailiffs
So what should you do if you think it’s time to place your company into liquidation?
Start your online liquidation today
If you have decided liquidation is the right option for your limited company, you can take the first step and begin the process online using our online portal. Starting the process is quick, simple, and can be done at a time that suits you. Your information will be submitted to your local UK Liquidators insolvency practitioner who will be with you every step of the way. Click here to start your company’s liquidation online.
Liquidating a company
You need to seek advice from a licensed insolvency practitioner when your company enters insolvency. They’ll guide you on your next steps, and if CVL is the only option you can take the initiative as directors and prioritise creditors according to UK insolvency laws.
A winding up resolution is passed when 75% or more of members vote in favour of liquidation, and the appointed liquidator then takes control of the company. The IP realises company assets and distributes funds to creditors, ultimately closing the company down.
There’s also an investigation into director conduct leading up to the time of insolvency, to make sure no misconduct has taken place. By seeking advice from a licensed IP and placing the interests of creditors first, however, you’re at less risk of serious allegations being made against you.
For more information on liquidating an insolvent company and the possibility of claiming redundancy pay as a director, please contact our team of experts at UK Liquidators. We’re liquidation specialists operating from a network of offices nationwide, and offer free same-day consultations to quickly provide the professional guidance you need.
Jonathan Munnery
Insolvency & Restructuring Expert | 20+ Years Insolvency Experience
Jonathan is a Partner at Real Business Rescue and member of both the Insolvency Practitioners Association (MIPA) and The Association of Business Recovery Professionals (MABRP). Jonathan has over 20 years’ experience guiding directors through CVL and MVL processes, helping them understand their options and navigate financial distress with clarity and compassion.
IPA Member MABRP Member IPA Regulated
“ Directors often wait too long before seeking advice. The earlier you call, the more options remain available to you — and the better the outcome for everyone involved. ”
Jonathan is a Partner at Real Business Rescue and member of both the Insolvency Practitioners Association (MIPA) and The Association of Business Recovery Professionals (MABRP). Jonathan has over 20 years’ experience guiding directors through CVL and MVL processes, helping them understand their options and navigate financial distress with clarity and compassion.
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