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Understanding the liquidation process: a quick guide

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What is the liquidation process?

The liquidation process is commonly seen as a complex and difficult landscape to navigate. Often company owners are overwhelmed by complex terms and lengthy legislation descriptions.

Whether you are looking into liquidating your company because it is experiencing financial difficulties and under creditor pressure or because you wish to dissolve your no longer needed company, understanding the basic steps of the liquidation process and how long it can take to liquidate a company can help take some of the mystery away and ease any anxiety.

What is liquidation?

In simple terms, a liquidation is an official process to close down a limited company. During the liquidation an appointed licensed liquidation practitioner will sell all your company assets and, in the case of an insolvent liquidation, distribute all the net proceeds between your company’s creditors.

In the case of a solvent liquidation, once creditors and costs have been paid in full the remaining funds will be distributed equally between the company’s shareholders.

According to the latest statistics on business failure, there were 3,837 compulsory liquidations in the UK in 2024, a figure that has gradually risen year-on-year since 2022.

Types of liquidation

Creditors’ Voluntary Liquidation (CVL)

Initiated by: Company shareholders.

Reason: The company is insolvent and cannot pay its debts.

Process in short: Shareholders appoint an Insolvency Practitioner (although the creditors replace them with their own choice of Insolvency Practitioner) who takes on the role of selling company assets and uses the proceeds to pay off creditors as far as possible.

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Members’ Voluntary Liquidation (MVL)

Initiated by: Company shareholders

Reason: The company is healthy and solvent but the directors wish to close it down for reasons such as retirement or capital release.

Process in short: Directors sign a declaration of solvency, shareholders appoint an Insolvency Practitioner to sell off assets, debts are cleared with the proceeds and the remaining funds are shared between company shareholders.

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Compulsory Liquidation

Initiated by: Usually creditors through a court order.

Reason: The company is insolvent and not paying its creditor debts.

Process in short: A creditor submits a winding-up petition to the court and the company, if the courts agree a winding-up order is made.

An Official Receiver is appointed to carry out the initial stages of the liquidation, often passing over to an Insolvency Practitioner to carry out the full liquidation process.

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What is the liquidation process?

This is a simplified process to help you understand how long it takes to liquidate a company and the major steps involved in the liquidation process.

Step 1: Deciding to Liquidate

In a CVL (Creditors’ Voluntary Liquidation), directors choose to close an insolvent company.

In an MVL (Members’ Voluntary Liquidation), directors close a solvent company as part of a strategic exit or restructure.

Step 2: Appointing an Insolvency Practitioner

You’ll need a licensed professional to carry out the process legally and properly. They’ll prepare the necessary paperwork, notify shareholders to pass the necessary resolutions, and (in CVLs) involve creditors.

Step 3: Creditor Involvement (CVL Only)

Creditors are asked to confirm the appointment of the liquidator and may attend a virtual or physical meeting to raise questions.

Step 4: Selling Company Assets

The liquidator takes control of the company’s assets, has them valued, and arranges for their sale.

Step 5: Distributing Funds

Money is distributed in the following order:

  1. Secured creditors
  2. Preferential creditors (e.g., unpaid wages, VAT)
  3. Unsecured creditors (e.g., suppliers, other HMRC, like corporation tax)
  4. 4.Shareholders (in MVLs)

Step 6: Final Report and Dissolution

A final report is submitted to Companies House. Usually around three months later, the company is formally dissolved.

This is a brief overview of the company liquidation process and not an exhaustive list of every element of the process.

Your Insolvency Practitioner will be able to guide you through your individual process stage by stage.

How we help with your liquidation

The Liquidation Centre offers expert liquidation advice for both solvent and insolvent companies. Our in-house liquidation team have years of experience in keeping the process as simple and understandable as possible. If you are suffering with creditor pressure or want to close down your no longer needed limited company contact us today.

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