Company Liquidation Stages

Company Liquidation Process

A company may be liquidated in the UK for several reasons, primarily if it’s unable to pay its debts or if its shareholders or directors decide to cease its operations, these are covered under the Companies Act 2006 and Insolvency Act 2000. Here are some common reasons for liquidation:

Insolvency: If a company cannot pay its debts as they fall due, it may be deemed insolvent. This can happen due to various reasons such as financial mismanagement, economic downturns, or loss of key contracts.

Voluntary Liquidation: Shareholders or directors may decide to voluntarily liquidate a company if they believe that it is no longer viable or if they wish to retire or move on to other ventures.

Compulsory Liquidation: If creditors take legal action against a company for unpaid debts and the company fails to pay, the court may order compulsory liquidation. This usually occurs after a winding-up petition has been presented to the court.

Administration: If a company is in financial distress but has a viable future, it may enter administration. During administration, an insolvency practitioner takes control of the company to try to save it, possibly through restructuring or selling off assets. If the company cannot be saved, it may eventually be liquidated.

Members’ Voluntary Liquidation (MVL): This is an option for solvent companies where the shareholders decide to wind up the company’s affairs and distribute its assets, often as part of a planned exit strategy.

In any case, liquidation involves the sale of a company’s assets to pay off its debts and liabilities. Once these are settled, any remaining funds are distributed to shareholders according to their ownership interests. Each of the stages in a liquidation need to be reported to the Companies House Register as it progresses. These are listed in our Glossary under ‘Company Liquidations‘