Insolvent Liquidation

What is insolvent liquidation?

Insolvent liquidation involves closing down an insolvent business through a legal and professional process. Because of the company’s debts, the most common way an insolvent company can close down is with:

Creditors Voluntary Liquidation

A CVL gives Directors and Shareholders the chance to voluntarily liquidate their company before the situation gets worse or ends in compulsory liquidation. We have broken down the CVL process in a simple guide so it’s easy to understand.

Compulsory liquidation

If a creditor is owed money and doesn’t think they’ll be paid, they can turn to the court by filing a winding-up petition. This is something HMRC often does if taxes aren’t paid. If the court agrees, it can force the company into compulsory liquidation to sell its assets and settle the debts as far as possible.

Implications of insolvent liquidation

For Directors:

Closing a company through insolvent liquidation marks the end of trading, which we understand can be a really challenging time. Choosing a CVL shows you’re taking responsibility by tackling financial challenges head-on. That said, directors should be prepared for their financial management to be reviewed during the process.

For Creditors:

Creditors understandably focus on recovering the money they’re owed. During an insolvent liquidation, the liquidator actively works in their interests. They have a say in some key decisions, such as choosing a liquidator who they feel more comfortable with.

For Employees:

Job losses are often unavoidable when there is an insolvent liquidation. There are Government schemes which help employees claim certain unpaid wages, holiday pay, or even redundancy.

For Shareholders:

If a company goes insolvent, the priority is to pay back creditors first. Unfortunately, this almost always means shareholders won’t receive a return or recover their investment.

The importance of seeking professional advice

If your company is insolvent, taking action and getting expert advice quickly helps you avoid creditors forcing compulsory liquidation.

At the Liquidation Centre, we offer a free, no-obligation financial health check to guide you through every step.