Discover the answers to these common company liquidation FAQs.
Facing the prospect of closing your business is never easy. For many directors, liquidation can feel like a last resort - something to avoid at all costs. But in reality, company liquidation can be a practical, controlled way to deal with unmanageable debt and give yourself space to move on.
At McAlister & Co, we understand how daunting insolvency can seem, especially when you're unsure where to turn. That’s why we’ve put together this article answering the most common company liquidation FAQs to help you make informed, confident decisions during a difficult time.
What is Company Liquidation?
Company liquidation is a formal process that brings a company’s affairs to an end. It involves:
- Stopping trade
- Selling assets
- Repaying creditors where possible
- Dissolving the company
Once the process is complete, the company ceases to exist as a legal entity. There are different types of liquidation depending on your situation (we’ll cover those shortly), but they all involve appointing a licensed insolvency practitioner to manage the process professionally and lawfully.
What are the different types of liquidation?
One of the most common questions we’re asked is: What kind of liquidation do I need? There are three main types of company liquidation in the UK:
1. Creditors’ Voluntary Liquidation (CVL)
This is used when a company is insolvent - it can’t pay its debts and there's no viable route to recovery. A CVL is voluntarily initiated by the company’s directors and shareholders. It’s a responsible way to close the business and minimise legal and financial risks for directors.
Best for: Insolvent companies with unmanageable debts.
2. Compulsory Liquidation
Compulsory liquidation is a court-ordered process usually started by a creditor who is owed more than £750. If a creditor presents a winding-up petition and it's successful, the court will order the company into liquidation - whether directors want it or not.
Best for: Situations where the company has ignored debts and creditor pressure has escalated.
3. Members’ Voluntary Liquidation (MVL)
This is for solvent companies - those that can pay all debts in full. Often used for tax-efficient exit planning, MVLs allow shareholders to extract funds when closing a business, usually for retirement, restructuring, or stepping away from trading.
Best for: Solvent companies looking to close down and distribute assets tax-efficiently.
How does the liquidation process work?
Depending on the liquidation process in question, there are different steps involved. However, here’s a simplified breakdown of how the creditors’ voluntary liquidation process works - since it’s the most common for companies facing financial difficulty:
1. Seek Professional Advice
It’s crucial to speak to a licensed insolvency practitioner early. At McAlister & Co, we offer a free, confidential consultation to assess your situation, answer any insolvency questions and explain your options.
2. Board and Shareholder Resolutions
If a CVL is agreed upon, the directors formally resolve to wind up the company. Shareholders then vote to appoint a liquidator.
3. Creditors’ Notification
Creditors are informed of the liquidation and are invited to submit their claims. They may also vote on confirming the liquidator and forming a creditors’ committee.
4. Asset Realisation
The appointed liquidator takes control of the company, sells its assets, collects outstanding debts, and begins repaying creditors.
5. Reporting and Dissolution
The liquidator reports on the directors’ conduct and distributes funds. Once the process is complete, the company is dissolved and struck off the Companies House register.
When is Liquidation the Right Option?
Liquidation is a serious step - but it’s often the right one if your company is:
- Constantly struggling to pay bills, wages, or HMRC
- Behind on loan repayments or supplier accounts
- Receiving threats of legal action
- Operating at a consistent loss with no recovery plan
- Causing you significant stress or sleepless nights
If you’ve explored other recovery options (like time-to-pay arrangements, refinancing, or a company voluntary arrangement) and none are suitable, liquidation may be the most effective way to resolve the situation, protect your creditors, and limit personal risk.
Will I be Personally Liable for Company Debts?
Not usually. One of the benefits of trading as a limited company is that your business debts are separate from your personal finances. However, there are exceptions. You may be personally liable if you’ve signed personal guarantees, you’ve continued to trade when you knew the company was insolvent, or you’ve misused company funds or assets
A good insolvency practitioner will help you understand your position and director duties clearly and advise on how to minimise your exposure.
Can I Start a New Company After Liquidation?
Yes, you’re allowed to be a director of another company following a liquidation. In fact, many directors go on to start successful new ventures after closing a struggling business. However, there are rules to follow if you plan to use the same or similar company name, take over assets from the liquidated business, or trade in a similar market.
When you seek insolvency and liquidation advice from McAlister & Co, you can rest assured that we’ll always advise you on how to stay compliant and avoid issues around phoenix companies and the wrongful reuse of names.
What Happens to Employees?
When a company enters liquidation, all employee contracts are terminated. However, staff (and directors who are also employees) can claim from the Redundancy Payments Service (RPS) for redundancy pay, notice pay, holiday pay, and unpaid wages.
At McAlister & Co, we’ll support you and your staff through the claims process to ensure everyone gets the support they’re entitled to.
How Long Does Liquidation Take?
The timeline can vary depending on the complexity of the company’s affairs, but most CVLs are completed within 6 to 12 months. Final closure only occurs once all assets are realised, investigations concluded, and creditor claims processed.
What Does Liquidation Cost?
There are costs involved in any liquidation, but many companies are able to fund the process from existing assets. At McAlister & Co, we always explain our fees transparently from the outset.
How can McAlister & Co help?
We know that deciding to liquidate a company can feel overwhelming. But you don’t have to face it alone. At McAlister & Co, we specialise in helping directors navigate insolvency with confidence and compassion. We offer:
- Free, no-pressure consultations
- Clear, jargon-free advice
- Licensed insolvency practitioners with decades of experience
- Support with redundancy, guarantees, and restarts
- A focus on solutions - not judgement
Whether you’re unsure what steps to take or ready to move forward, we’re here to help you do what’s best - for your business, your creditors, and yourself.
Let McAlister & Co Answer Your Company Liquidation FAQs Today
If your company is in financial trouble and you’ve got company liquidation FAQs that need answering, don’t face it alone. Contact McAlister & Co today for a free, confidential consultation with one of our licensed insolvency practitioners so you can start taking the right steps forward.