What does liquidation mean?

Liquidation is a formal procedure whereby a liquidator is appointed to ‘wind-up’ the affairs of a limited company, which involves selling the company’s assets and paying creditors. When all the assets have been sold and the money distributed, the company is dissolved, which means that it no longer exists.

How do you put a company into liquidation?

There are two ways to liquidate a company:

• Compulsory liquidation: this is where someone, usually a creditor, presents a petition to the court and gives evidence that they are owed money which the company cannot pay, and so the court makes a winding-up order. The Official Receiver is normally appointed liquidator of the company. It is usual for a creditor to instruct a solicitor to act on his behalf because of the legal nature of the proceedings.
• Voluntary liquidation: this is where the company itself decides to go into liquidation, usually because it cannot pay its debts, and an insolvency practitioner is appointed liquidator of the company.

How much does it cost?

If you want to put a company into compulsory liquidation, you have to pay £690 deposit to the court, plus a £190 court fee, plus the cost of advertising the petition in the London Gazette and any costs of instructing a solicitor. If you want to put a company into voluntary liquidation, the costs vary depending on which insolvency practitioner you use.

The forms to put a company into compulsory liquidation can be found on our website at www.insolvency.gov.uk in ‘Forms’ and then ‘Forms for England and Wales’.  Alternatively you can complete the winding up petition online via the Online Forms Service by going into ‘Do it online’ on the website.

What happens to the company directors?

When a company goes into liquidation, the directors cease to have control of the company, and the liquidator takes over. The directors have a duty to co-operate with the liquidator to identify all assets and liabilities of the company and provide details of its affairs. The liquidator has to make a return under the Company Directors’ Disqualification Act 1986 about the directors’ conduct in relation to the company.

Click HERE to view the Compulsory Liquidation General Overview flowchart.

LIQUIDATION

Liquidation is a legal process whereby a limited company is 'wound-up' and eventually it is dissolved, which means it ceases to exist.

There are three types of liquidation :

1. Members' voluntary liquidation: This is where the shareholders of a company decide to go into liquidation, and there are sufficient assets to pay all the debts of the company, i.e. the company is solvent.

2. Creditors' voluntary liquidation: This is where the shareholders of a company decide to go into liquidation, but there are not enough assets to pay all the creditors, i.e. the company is insolvent.

3. Compulsory liquidation: This where a person, usually a creditor, petitions the court to make a winding-up order.

The Role of the Official Receiver and the Liquidator

The liquidator is the person responsible for managing the liquidation, in particular realising all assets and sharing out the proceeds amongst the creditors.

In voluntary liquidations, the liquidator is an insolvency practitioner (IP), and the Official Receiver has no involvement.

In compulsory liquidations, the Official Receiver is usually appointed liquidator on the making of the winding-up order. In addition to his responsibilities as liquidator, the Official Receiver has further statutory duties, which include investigating the company's business activities and reporting to creditors. The Official Receiver also decides whether to call a meeting of creditors in order to appoint an IP as liquidator in his place - if an IP is appointed liquidator in the place of the Official Receiver, the Official Receiver still retains his investigatory and reporting duties.

There are cases where an IP is appointed liquidator on the making of a winding-up order, and in such cases therefore, the Official Receiver only has investigatory and reporting duties.